An unpublished blogpost on AMP - one of the most mismanaged companies I have ever seen

Advance disclosure: I have no position long or short AMP. I have considered going long the company several times - but every time I have peeled back the onion the inner layers are more rotten than you can imagine. So I passed.

AMP also gave me the most unsatisfactory investor relations meeting I have ever had. This was in May 2021. I wrote an angry blogpost then about the company. I never published that blogpost because a staff member had a relative who worked at AMP. She does not work at AMP now - and I feel less constrained.

This post should also be read in light of the fact that AMP has just lost a major court case concerning how much AMP has been paying financial advisors under the “buyer of last resort” deal they had with those financial planning businesses. You can find a summary of the court case loss here.

Here is my previously unpublished blog post.

A mismanaged heritage, and a legal strategy that revolves around not paying your obligations. How to value the AMP!

I have just had the most unsatisfactory investor meeting I have ever had. It is the first time I have actually just hung up on a meeting and it is because the company refused to delineate the biggest number and the biggest issue facing the company – an issue on which it could go bust.

The company was AMP – once an Australian financial giant – and now a shadow of its former self. The stock is down 95 percent or so over twenty years against a massive boom in its sector. It is amongst the worst examples of mismanagement I know.

But the stock looks cheap – really cheap – and so I decided to have a look.

Some history

When I was a teenager funds management and financial advice in Australia meant AMP. This was a giant company – in many ways more powerful and more important than the Australian mega-banks.

AMP was at core a life insurance company whose teams of semi-independent life insurance salesmen formed financial planning offices and became – by far – the biggest funnel for retail financial investment into the market. You went to an AMP advisor and you were fed a platform of AMP products – be it AMP Australian equities or AMP fixed income or AMP property trusts or whatever happened to be on the AMP platform.

Importantly it was a closed platform – a walled garden of AMP products for AMP financial planners to sell to their clients.

And it was huge.

Platforms are important in Australia because there is a massive private superannuation industry and if I invest my superannuation using one of the platforms the platform can do all the complex superannuation compliance for me.

This should be a large – and over the last thirty years – growing business.

And it was. But not for AMP.

Smaller life insurance companies – notably Colonial Mutual, MLC and Skandia – built open platforms. If you went to a financial planner tied to MLC you would have a choice – quite an extensive choice – where the MLC products were displayed above the fold in the page – but also made available a large range of other funds managers.

The open platforms were definitively a superior product for customers (because they were not limited). Indeed, end customers could chase whatever high performing mutual fund they liked (as long as it was on the platform).

The smaller platforms grew and grew at the expense of AMP. They are now collectively giant.

AMP’s choice

AMP had a choice – and it was a nasty choice. The choice was either

a)     Open up your own platform and compete head-to-head with the new open platforms or

b)    Build further walls around your walled garden to try and protect what you have.

The issue was that AMP was the incumbent. A vast proportion of the money was already invested at AMP – and as soon as they opened up their platform a large amount of the money (maybe a third) would immediately leave the AMP for things outside their walled garden.

Opening up the platform would be an immediate and large profit hit for the AMP. AMP would need to shrink its funds management apparatus – and the lock that AMP had on Australia’s savings (and hence the inordinate power of senior AMP staff) would be curtailed. It would be an immediate 30 percent profit cut (or more) but it would be a much larger status cut.

So, AMP did not open up their platform except belatedly and in limited ways. Instead, they tried to build their walled garden into a fortress – trying to prevent clients and advisors leaving.

Stopping people leaving was hard – because as explained above the competitors had (and continue to have) a superior product.

The Buyer of Last Resort (BOLR)

AMP advisors of course were independent businesses. There was always a risk of them moving to one of the open competitors – and indeed they should have moved to their competitors if only because the competitors offered a superior (open) product.

There was no point having a closed platform if the advisors were just going to move on mass to an open platform.

So, AMP had to stop them.

The single most important thing that AMP did to stop its advisors leaving was to guarantee that they would receive good money for their advisory business when they retired. They offered a guaranteed price for this – a price typically about 4x revenue.

It was a good price – and enough to convince the advisors to stay. The deal is known as the “buyer of last resort” or the BOLR.

Given the value of AMP advisor business the BOLR now looks like it is set too high.

AMP has been a clusterfuck of bad performance (which drives money away) and bad behaviour exposed by the Royal Commission (which also drives money away).

To nobody’s surprise money is being driven away.

Advisors are looking at their impaired business (impaired through the ineptness of the central company) and saying – yeah -I will take that.

They want to exercise the BOLR.

And AMP most assuredly does not want them to exercise the BOLR.

AMP’s behaviour

If a financial advisor tries to exercise the BOLR they can expect AMP to do a thorough “due diligence” on them. What the due diligence is trying to do is to find an infraction (any infraction will do). It does not matter if the infraction is minor. It does not matter if was unintentional or rectified quickly. They just want an infraction.

Then they report them to the regulator (ASIC) and refuse to honour their obligations under the BOLR.

This is well explained in this article about the weaponization of BOLR exit clauses.

https://www.ifa.com.au/news/28979-inside-amp-s-weaponisation-of-bolr-exit-audits

We all know what this is. It is AMP refusing to act in good faith.

And yes – it will end in a class action lawsuit. And yes, AMP will lose at least something, potentially a lot. A number I would like to quantify.

My gripe – the one that got me to hang up

I just asked investor relations a very simple question. One which is central to understanding AMP. And that question was “what was the maximum contingent liability that would face the AMP in the event that all their advisors chose to exercise the BOLR?”

I did not even ask for a dollar amount – but you would think that should be knowable. Just a way to bound it.

Their IR person refused point blank to answer.

I said there was no point having this meeting without an answer.

They said if that is how I feel about it…

And we hung up.

Pleading for an answer

I really would like an answer to this question. Because AMP looks cheap. Really cheap. So, if someone – anyone – can scale the answer please contact me.

Looking for help here.

John