Buried deep on page 20 of the 22-page ultra soft-focus annual report (titled ‘Help’), AMP Wealth Management NZ finally gets to the point.
AMP Group, the report says, ”is exploring divestment of AMP Wealth Management New Zealand (our business), including our majority owned subsidiary AdviceFirst”.
“This would enable our business to pursue further growth opportunities in the local market as we continue to improve our product and service offering for our clients locally,” the NZ report says.
The ASX-listed parent company puts a different slant on the imminent sale of its unwanted NZ child.
According to strategy documents released along with its 2019 annual results last week, the AMP NZ divestment “process is underway with mandate to maximise shareholder value”.
“AMP is in discussions with a number of interested parties and expects to provide a further update at or before [June 2020 half-year] results,” the report says.
It is understood that AMP is seeking about $500 million for the rump NZ wealth operation with US private equity firm TA Associates – part-owner of Fisher Funds and Russell Investments (also rumoured to be for sale) – tipped as leading contender. According to industry sources, another US private equity manager, Blackstone (which has an almost 50 per cent stake in Partners Life), has abandoned its pursuit of AMP NZ.
Regardless, final bids for the in-limbo AMP NZ business should be tabled soon – if not already. Investment banks Jarden and Credit Suisse are running the sale process in NZ and Australia, respectively.
The prize is a slimmed-down wealth management business comprising $12.8 billion in funds under management (about half in the AMP KiwiSaver scheme plus about $3 billion apiece in its corporate super and retail product range) and 60-odd financial advisers, shared about equally between the house brand and AdviceFirst.
Over the last 18 months, AMP NZ has formally cut ties with the life insurance business (sold to Resolution Life last year), from which it emerged about 165 years ago.
After the life divorce, AMP NZ wealth earnings held up reasonably well last year: the business reported operating earnings of about $47 million in 2019 compared to $57 million the previous year (which included some life insurance income).
In Australian dollar terms, AMP NZ turned in a profit of A$44 million last year, split between A$26 million from wealth management and A$18 million from advice.
But the headline figures belie underlying weakness in AMP NZ funds flow and potential disruption to long-held advice relationships.
During 2019 AMP NZ saw net fund outflows of A$543 million in its non-KiwiSaver products (mostly from retail unit trusts) – rescued in part by A$110 million net inflows into KiwiSaver.
Total funds under management (FUM) increased by almost 9 per cent “largely due to stronger investment markets”, the NZ report says.
Data included in the parent AMP annual results shows the NZ wealth business lost market share across all product sectors over the 12 months ending September 30 last year.
The NZ group gave up 1.3 per cent share of the total retail fund market during the 12-month period to finish on 6.9 per cent. Most importantly, the AMP KiwiSaver scheme – still the fourth-largest – continued its ongoing relative decline by shedding 1 per cent to competitors. As at September 30 last year the AMP scheme represented 9.3 per cent of total KiwiSaver FUM.
And competitors even clawed back some ground from AMP in the corporate superannuation space it has long dominated via the NZ Retirement Income Trust (NZRT). NZRT market share fell from 40.6 per cent to 39.3 per cent over the 12-month period, the AMP figures show.
AMP NZ also enters 2020 with a substantially changed distribution footprint. Last year the group renegotiated contracts with 281 financial advisers who previously operated under the AMP Financial Advice Network.
Under the new arrangements, those 281 advisers will be “responsible for their own advice and compliance” when the Financial Services Legislation Amendment Act (FSLAA) regime goes live on June 29.
“New Zealand Wealth Management does not expect this to materially affect [assets under management] AUM in connection with these advisers,” the AMP strategy document says.
The bulk of the discarded AMP advisers specialise in life insurance (and maybe dabble in KiwiSaver) but there are a handful of large investment books among the group. Many of the AMP exiles have gathered under the Wealthpoint co-operative, which is currently negotiating with potential service providers.
AMP has, however, retained 62 financial advisers in NZ, the report says, including just over 30 in the AdviceFirst group. Originally set up to share equity with advisers, AMP has steadily increased its ownership of AdviceFirst to 95 per cent.
About 35 advisers have exited the group and sold AdviceFirst shares back to AMP since it launched in 2008.
The ownership uncertainty has undoubtedly affected business for AMP NZ. ‘Persistency’ – a measure of net funds flow – in the NZ wealth division fell from almost 89 per cent in 2018 to just under 86 per cent a year later, the Australian report shows, while its cost-to-income ratio rose by more than 4 per cent.
Yet by another metric, the return on business equity (ROBUE), AMP NZ looks a lot healthier than its Australian counterpart. The NZ ROBUE was 41 per cent in 2019 or more than double the Australian wealth business – albeit that the figure slumped about 20 per cent for both units year-on-year.
Despite the relatively good statistics, Australia is just not into the NZ wealth business. (AMP Capital NZ, however, is not directly affected by the wealth sale.)
AMP NZ wealth represents just 3 per cent of the total ASX-listed entity’s “tangible capital” and 8 per cent of operating earnings. The NZ business is notably absent from the AMP three-to-five year outlook, which forecasts AMP Capital to supply 45 per cent of earnings with the remainder split between AMP Bank (30 per cent) and Australian wealth management (25 per cent).
Of course, the reformed ASX-listed AMP group faces some troubles of its own such as a massive clean-up bill and collateral brand damage from the Royal Commission into financial services. Last year AMP also bled more than 400 financial advisers from its network (mostly deliberately) and suffered net outflows of about A$6.3 billion from its Australian wealth management arm.
In addition to a slew of lawsuits from consumers, investors, regulators and former advisers, AMP faces an uphill battle rebuilding trust with the Australian public.
The group wrote down the value of Australian wealth management by A$1.5 billion last year as part of total impairment costs of A$2.4 billion.
On the upside, AMP chief, Francesco De Ferrari, said in a release that during “the reset, AMP Capital had an outstanding year”.
De Ferrari said in a “period of unprecedented legislative and regulatory pressure we have established a strong three-year roadmap for recovery”.
“Our focus is now on delivery,” he said.
The NZ business, packaged and ready for stamping, is likely first in the post for AMP in a deal that offers a slight capital boost to the battling Australian giant.
AMP shares rose 0.55 per cent on Friday to $1.82.
As the AMP NZ wealth report cover page puts it: “It’s amazing what a little help can do.”