Why AMP’s goals-based play matters

In October 2016, AMP’s media minders called relevant outlets one by one and announced the launch of AMP Advice, a new channel aimed to bring “goals-based advice” to the 80 per cent of Australians who don’t currently see a financial adviser.

As fitting for members of the journalistic profession, our initial response was decidedly cynical.

“Umm… what have you been doing up until now?” was a question that immediately came to mind, among others.

The response of much of the financial advice industry was not much warmer.

“When you see these guys saying ‘we need to move towards goals-based advice’ it’s quite shocking because that’s what financial planning is,” said Tiffen & Co adviser Katherine Hayes.

“This isn’t a new movement,” said an exasperated Matthew Ross, co-principal of Roskow Independent Advisory, alluding to movements afoot in the US such as Bill Bachrach’s values-based brigade.

Aside from an inaccurate article in the News Corp papers claiming AMP’s Rob Caprioli “created goals-based advice”, I don’t think anyone is suggesting the company is a global pioneer in this approach, not even AMP itself.

There are plenty of advisers, both here and abroad, who place a primary priority on satisfying client values and life objectives over investment returns and who call this approach “goals-based advice”. Others believe the entire concept is a buzzword or fad devoid of meaning. These are healthy debates that passionate professionals should make up their own mind on.

The significance of AMP’s “goals-based” pivot lies not in the inference that it was first to do so, but in the underlying conclusion that it needs to change its modus operandi.

In moving advisers in its ipac channel over to AMP Advice, and in announcing to investors that its wealth management revenues depend on the success of this new salaried approach, as it did last week, AMP has implicitly admitted that the traditional dealer group model it has until now been the flag-bearer of no longer works in an age of fiduciary duties.

In addition, with active fund management fees and performance under the radar of increasingly switched-on advisers and investors, the ‘goals-based’ approach takes some of the pressure off when it comes to providing client feedback.

Unlike some of its competitors, AMP shows no signs of getting out of advice completely. But its placing of AMP Advice on a pedestal indicates its appetite for authorising third party small business people – who are much worse at being told what to do than salaried employees – is waning.

The vertically integrated model of hidden allegiances and murky incentives that has dominated the advice industry is coming apart at the seams, and AMP’s push into salaried “goals-based” advisers is another piece of evidence for the death knell.

Finally, the strategy is significant as a symbol of the growing influence of American wealth managers in Australian advice.

First New York-based Focus Financial Partners entered the Australian market via acquisition of Melbourne's MW Lomax, indicating its intention to buy up more independent and boutique firms. And now it has been revealed that AMP has developed a cross-border "knowledge-sharing" relationship with Focus's rival United Capital ahead of its strategic shift.

While some Aussie advisers have always delivered ‘goals-based’ advice, few go as far as Joe Duran and United Capital.

The financial life management (FinLife) philosophy United Capital subscribes to goes a step further, with its implicit belief that the game is rigged and the investment management function has already been made redundant by robots.

Moreover, United Capital is also fiercely independent, contributing to the rise of the US registered investment adviser (RIA) movement that turned its back on the Wall Street orthodoxy and the idea that financial advice and product manufacturing can co-exist.

Whether AMP – with its insurance, superannuation, lending and funds management arms and its history of allegations of in-house product bias – can truly embark on the United Capital model remains to be seen.

The ‘goals-based’ push may well be a smokescreen designed to divert attention from its declining dealerships or it could be a genuine shift in its value proposition and approach to its own work.

Either way, it speaks to a turning tide in Australian financial advice and product distribution.

We’ll retain a little scepticism just in case.