AMP aligned advice businesses – revenue rich but profit poor

Mike Taylor

Managing Editor and Publisher

11 August 2023

ANALYSIS

It will have been lost on none of Australia’s major financial planning businesses that while AMP’s financial advice business is still a long way short of achieving break-even, its component parts appear to be highly efficient.

What AMP Limited’s investor briefing around its first-half results revealed was that AMP aligned financial advice practices generate higher annual revenue than the industry average.

This fact was expanded in the general analysis which said that revenue per practice had increased 10.3% and that analysis indicated “that 50% of practices in the AMP Advice network generate revenue over $1 million, compared to 30% in the broader industry.

This is important in the context of models being pursued by businesses such as Paul Barrett’s Italian-backed AZ-NGA which has been built on taking equity stakes in profitable and growing financial planning businesses rather than pursuing the traditional licensee/dealer group model.

The relative efficiency of AMP’s aligned financial planning businesses also needs be weighed against that of Insignia Financial and Insignia’s recent announcement of the establishment of a new company to house its financial planning licenses.

Both Insignia and AMP remain Australia’s largest financial planning licensees yet neither is turning a profit from their advice businesses.

The bottom line for AMP shareholders is that the advice business booked a $25 million loss in the first half and the company is still struggling to balance scale and cost to get anywhere close to break-even.

This then needs to be compared to the other parts of the AMP business, with AMP Bank increasing underlying net profit after tax (NPAT) by 23.9% to $57 million, the North Platform business increasing NPAT by 25.7% to $44 million and even its struggling master trust business improving underlying NPAT by 7.7% to $28 million.

The question for AMP and others in the financial planning arena is whether the company really wants to be in the advice business over the long haul when profitability would appear to be still up to four years’ away, at best.

According to AMP chief executive, Alexis George, the company is looking to deliver $120 million in run rate controllable cost savings by the 2025 financial year and some would suggest that unprofitable financial advice business represents a lot of weight in the company’s sandle-bags.