AMP’s result won’t surprise anyone, with the disappointing numbers already flagged to the market in June. But there was one small comment in this morning’s presentation that jumped out at me.
By 2017, after four years of margin compression, AMP is going to be creaming an average of 3.5% to 4.5% per annum off its assets under management. That is an absurdly high number and would mean that its clients are no chance of earning a real return on their money.
It has, of course, been much worse than that in the past. AMP has been the main player in the evolution of Australia’s horribly conflicted financial planning industry. Its business is dependent on naive clients signing up to hidden trailing commissions and absurdly high fees.
But, thanks to the MySuper reforms (which don’t go far enough, as an aside) the world is changing for the better. AMP’s business model needs to change with it but, assuming they have to provide their clients with a half-decent service, the new is going to be a lot less profitable than the old.
Update: I think Stephen's comment below is correct. I have misinterpreted this statement – they are probably suggesting margins will compress by 3.5%-4.5% p.a., not to that level. The half year margin was 122 basis points, which would suggest an average fee take of 2.5% p.a. at the moment. Still horrendous but not as bad as I was suggesting.