From heavyweight to bit player – AMP leaves advice

The imperative for AMP Limited to get its financial advice business substantially off the books are explained by the simple fact that, despite major cost-out exercises, it remained a long way from achieving break-even.

According to the company’s half-year results, the advice business recorded a net profit after tax loss of $15 million and, notwithstanding the fact that this represented a 40% improvement on the previous half, it still remained at least 18 months shy of break-even.

The 40% improvement also needs to be seen against the 30% improvement recorded in the company’s full-year results and the admission earlier this year by AMP’s financial advice chief, Matt Lawler, that the advice business was being weighed down by corporate costs.

Notwithstanding all of the above, Paul Barrett’s AZ-NGA’s relationship with Entireti sees  it pick up the AMP’s financial advice licensees, Charter, Hillross and AMP Financial Planning for a comparatively modest $10.2 million only 70% of which is in cash and the remainder being AMP’s equity stake.

There is, too, the $82.2 million that will be paid for AMP’s equity holdings in 16 financial advice practices.

Then, too, AMP will be adopting the approach of many superannuation funds and insurers by continuing to employ salaried planners with the objective of providing primarily superannuation advice.

Speaking to Financial Newswire in the aftermath of announcing the transaction as part of the company’s half-year result, AMP chief executive, Alexis George, made clear the degree to which financial practicalities had underpinned the deal,

There was not only the admission that finding the last $10 million to $15 million to achieve break-even was going to be hard, but also the reality of needing to maintain adequate investment in the advice business.

George acknowledged that AZ-NGA had come to the party with the ability to write the necessary cheques.

Also central to the transaction is the manner in which AMP has sought to buffer the impact on advisers including offering financial transition assistance and the opportunity to take an equity stake in the new entity.

Reflecting the level of consultation which occurred in the lead-up to the announcement, The Advisers Association (TAA) chairman Scott Montefiore said his organisation had been working with AMP for a while on what the future for AMP Advice looks like.

“The partnership arrangements announced today appears to align with what our members expect for an on-going relationship,” he said.

TAA chief executive, Neil Macdonald, said that the initial feedback from many members following the announcement was ‘they are looking forward to the changes after several years of ambiguity about what the future holds.’

For AZ-NGA’s Barratt the transaction delivers him the scale which justifies continuing investment in his business model.

The new entity will sit under the Entireti umbrella, which includes Fortnum Private Wealth and Personal Financial Services (formerly Australian Unity Personal Financial Services).

Barrett said the transaction highlighted AZ NGA’s increasing focus on larger transactions and its ability to innovate to satisfy the needs of different stakeholders.

“This is our biggest transaction to date and we are excited to welcome 16 quality businesses that are focused on growth to our community,” he said.