In an investment update Morningstar analysts have forecast operating earnings in AMP’s Australian wealth management business will fall by high single digits this year and to remain flat for the next four years, with large outflows expected to continue.
The wealth segment copped $6.3 billion in outflows in the 2019 full year.
Morningstar has given the overarching group a high uncertainty rating, due to heightened regulation and competition limiting how much new money AMP can attract and charge clients, as well as risks of additional capital burden and shrinking its competitive position in its simplification strategy.
“The brand stigma around AMP will likely linger, limiting new businesses in the near term,” the analysis noted.
New education requirements for financial advisers also come into play when considering the group’s wealth business – with further dwindling numbers of advisers possible, AMP’s distribution reach and ability to bring in new inflows could be affected.
“We estimate less than half of all AMP advisers currently meet the new, more stringent adviser education standards. Not all will satisfy these requirements,” Morningstar said.
“Meanwhile, advisers who derive a large portion of income from trail commissions, mainly provide transactional advice and or have unsatisfactory compliance standards have been (or likely will be) shown the door.
“[AMP Australian wealth management] is moving towards long-term earnings growth, but the journey may be turbulent.”
As part of the group’s restructure, AMP Bank has merged with the wealth unit, but the bank is anticipated to suffer bad debts during the ongoing crisis.
The bank’s earnings have been projected to fall to around $100 million in 2020, in contrast to its $141 million last year, before it rebounds in the coming years.
AMP Capital is expected to overtake the other segments as the group’s core earnings generator, with Morningstar forecasting its earnings growing at 8 per cent annually in the next five years.
Assets under management (AUM) are tipped to exceed $260 billion by 2024, from its $192.4 billion as at 31 March.
But the investment firm is at risk of losing AUM from the sale of AMP Life and expanding approved product lists for the wealth segment’s advisers, giving them more asset managers to choose from.
The group confirmed the sale of AMP Life to Resolution Life had received regulatory approval on Tuesday.
Meanwhile, Morgan Stanley analysts have asked what AMP will do with the proceeds from the Life sale, after it flagged net cash proceeds of $2.5 billion will be split between repaying debt ($800 million), paying Life separation costs ($400 million) and fund capital dis-synergies ($200 million).
A further amount is said to be placed towards funding the $1 billion-$1.3 billion investment spend on the new business.
Among other options, Morgan Stanley has suggested the group increase exposure to Australian wealth, with other competitors exiting.
It has also said that the group could support growth in its seed capital and banking businesses, provide a safety buffer for the client remediation program or resume paying a dividend.
Morningstar has forecast a small dividend of 4 cents per share for the 2020 year.
Sarah Simpkins
Sarah Simpkins is a journalist at Momentum Media, reporting primarily on banking, financial services and wealth.
Prior to joining the team in 2018, Sarah worked in trade media and produced stories for a current affairs program on community radio.
You can contact her on [email protected].
