While most attention last week focused on AMP Limited’s deal with Ares Management Corporation around a joint venture based on its private markets business, a key message from the AMP is that the transaction, if it comes off, represents the conclusion of AMP’s ‘portfolio review’.
That means that there will be renewed focus on how it can complete its advice ‘reinvention’ strategy.
AMP began its portfolio review process in September last year noting that it “periodically receives unsolicited interest in its assets and businesses, and recently has experienced an increase in interest and enquiries”.
“The board has therefore decided to undertake a portfolio review to assess all opportunities in a considered and holistic manner, evaluating the relative merits as well as potential separation costs and dis-synergies, with a focus on maximising shareholder value,” it said.
It was not long after that announcement that AMP received an expression of interest from Ares which initially looked attracted to the totality of AMP Limited but which ultimately decided it’s real focus was on AMP Capital – something which evolved into last week’s joint venture announcement.
The bottom line for AMP shareholders is that if the joint venture arrangement comes to fruition then, taken together with the sale of the AMP Life, it will serve to have provided AMP with a substantial war chest with which to continue reshaping the business, including its reinvention of wealth management in Australia and defending or settling litigation.
And wealth does represent a continuing sore point for AMP with net profit after tax (NPAT) down $80 million to $110 million, according to the company’s full-year investor presentation and with the company still struggling to reshape its advice business at the same time as dealing with issues such as buyer of last resort (BOLR) disputation and associated adviser-initiated class actions.
According to the investor update, 2021 is supposed to be the year in which it completes the reshaping of the advice business while 2022 is when it “scales Australian wealth management through competitive, differentiated product offerings”.
According to AMP, reshaping the wealth business is about 75% delivered and “practice exits are being delivered to plan” but the bottom line is that those words have translated into the 942 advice businesses which sat under the AMP umbrella in 2019 now being reduced to 595.
But at the core of the AMP strategy is the same objective as that which has been expressed by both CountPlus and other major licensees - “standalone profitability”, which translates to the removal of product and other subsidies.
What AMP signaled it was looking for was asset under management (AUM) per practice of $148 million – a benchmark that was always going to test some of small-scale advisers.
AMP advisers and plenty of growth-hungry financial planning licensees will be paying close attention to how the AMP strategy ultimately plays out.