AMP aligned advice businesses – revenue rich but profit poor
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.
AMP Advice isn’t meant to be turning a profit. It’s a marketing expense, to make sure the product lines turn a profit. Influencing advisers’ product recommendations through licensing (or ownership) is the business model for AMP, Insignia, AZ-NGA, and every other vertically integrated product company. How many independent advisers would recommend those companies’ products?
Seems as soon as the BEAR regime came into force, executives who didnt know a thing about Financial Advice brought in huge amounts of compliance staff. Overburdening the system with those trying to prove their (compliance) worth, and the resulting inefficiency of our industry.
Ha Ha, for an advice business that allegedly isn’t subsidised by product, I wonder where the $25 Million came from. That means that the management, licensing fees, compliance, conference etc.. was all supported by the profit from the product. The only reason that the shareholders can accept this is that those advisers are using the platform and making those profits artificially inflated. How can this not be a conflicted model – It wouldn’t pass any pub test. Lets clean the blatant conflicts out of the industry.
Just get rid of the licensees for qualified advisers. Why are Advisers having to prop up licensees?
I’m coming around to this view, our Licensee has jacked up fees by around 30% and made people redundant and lowered service offering. I know they need to be profitable to survive but there is a lot of excess at the top
I was one of the many financially destroyed by AMPFP but decided to stay in financial planning on the basis that no other licensee could be as bad as them. As part of my due diligence with new licensees I would ask them to justify their fees and the results were hilarious. Very few of them have anything approaching a CVP. As to the average practice size of course AMP have more at the higher end given they forced out the smaller practices. The real determination of whether this was a good idea will be if AMP Advice ever return a profit (which I doubt) and the level of funds they need to pay to the class action (which I hope is enough to bankrupt them).
Scott, I’m ex- Charter we sure felt for you guys. My ex business partners who I still catch up with. Say they regret staying with AMP.
Very little has changed and compliance on fee for advice has got worst!
I was one of the lucky 192 of us that they culled in August 2019 (we’re probably from the same group Scott). Thankfully I got institutional transfer of clients and there was a group of us [departing AMP] advisers that spent a lot of time together looking at various Licencees to then decide with whom to transfer. We interviewed (as a group) the top 10 and re-interviewed the top 2; before all making independent decisions. I doubt AMPFP was ever meant to make a profit, it was always loss making when they had low fees (3.5%) for $1M+ revenue practices and were giving them rebates that were effectively paying the practices to stay.
Why are you lot moaning about licensees, then signing up with another licensee? Why not take responsibility for your business and your advice, and become self licensed? If you don’t have the resources or the ability to do so, you probably should be an employed adviser, not a practice owner.
Sounds like Charter
You can make a good living as a Financial Planner and Business owner but Financial Advice will never be profitable for product manufacturers…there’s simply too many fingers in that pie. Any Financial Planner working with AMP needs to go to a Communist Chinese re-education style of camp, in order to have the AMP beat out of them…Upon finishing they can be unleashed and AMP itself needs to be swallowed up in a big black hole.