‘Captive’ advisers drive AMP outlook

In-house cross-selling of financial products is a competitive advantage for AMP, say Morningstar analysts, but the best interests duty may cause havoc for future financial results.

Yesterday, AMP released its latest financial results, unveiling first half net profit of $445 million and wealth management business operating earnings of $193 million, down 1 per cent on the corresponding period.

In a report issued last night recommending investors hold AMP shares, Morningstar analysts pointed to AMP’s vertically integrated structure and in-house distribution as key shareholder benefits.

“AMP uses its captive financial adviser network to sell a wide range of AMP investment and risk insurance products,” the report states. “[AMP] now boasts approximately 3,800 advisers, providing a very effective distribution capability for AMP-owned products.”

At the same time, however, the researchers argue that the fiduciary rule implicit in FOFA may see this competitive advantage diminished in the long-term.

“A regulatory requirement for financial advisers to operate in their clients’ best interests could threaten AMP’s success in selling a large proportion of AMP products to their clients,” the report states. “Despite the business impact, AMP continues to support the Future of Financial Advice reforms.”

The report also suggests that increased growth in AMP’s advice channels could ignite recruitment activity and customer acquisition.

“The larger and more successful the AMP adviser network becomes, the more interest independent and non-aligned planners have in joining the AMP group,” the analysts assert.

“The network effect gains momentum, increasing customer numbers, demand for AMP products and, crucially, funds under management.”

The analysis comes despite a reduction of 14 per cent in adviser numbers across the AMP network in 2016, down to 3,519 as at February 2017 from 4,091 at the same time the year before.

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