lessons learned from the evolution of 30 years of the financial institution

These days, AMP is a small cap trying to sell a turnaround story with a business model abandoned by every other local financial institution except the Macquarie Group. Only AMP and Macquarie have financial and banking advice under the same roof.

Chanticleer has chosen five key topics for this discussion of the profound changes in Australian business and GPA over the past three decades.

Exits

In 1992, AMP’s 12-member all-male board, led by chairman Ian Burgess and chief executive Ian Salmon, had every reason to believe that AMP would dominate the financial landscape for decades to come.

AMP had total revenue of $12 billion, $60 billion in policyholder funds, provided $176 billion in life insurance protection, and paid out $7 billion to policyholders and beneficiaries.

But scratches under the surface and cracks appeared in its economic model.

George’s employer, BT, which in 1992 had added $12 billion in funds under management since the stock market crash of 1987, was stealing AMP’s big pension clients.

In the two years to December 1993, AMP’s premium income fell by about $800 million to $7.3 billion, and management said it was looking to “restore investor confidence and stop the trend”.

Today, George faces far more serious outings than in the 1990s.

A catastrophic loss of confidence in AMP caused by the Hayne Royal Commission revelations of AMP’s unethical and immoral behavior towards its clients resulted in $23.7 billion in cumulative cash outflows from the management arm of AMP assets since 2018.

In the six months to June this year, AMP’s wealth management outflows were a relatively modest $1.9 billion, an improvement from the $3.6 billion in outflows in the first half. from last year. George tells Chanticleer that she hopes to have positive streams by “the end of 2023.”

Like most large corporations in the 1990s, AMP was a male-dominated workplace, with no women in leadership positions or on the board.

Diversity and Culture

AMP’s work culture was out of step with progressive workplaces such as BT, where George was at the forefront of a deliberate policy of hiring women, according to Gideon Haigh’s book on BT – One of a Kind, The History of Bankers Trust Australia, 1969-1999.

Haigh pointed out that senior male executives at BT recognized there was a “locker room atmosphere” and that needed to change.

BT’s top executive, Jillian Broadbent, was quoted in the book as saying that BT was initially slow to confront testosterone-fueled behavior on the trading floor.

It’s amazing that 30 years after others recognized the importance of inclusion and diversity, AMP has fallen into the trap of turning a blind eye to unacceptable male behavior. This weakness manifested itself in the controversy surrounding the appointment of Boe Pahari as head of AMP Capital in 2020.

George leads AMP’s cultural transformation, which she defines as “improving inclusion, diversity, and strengthening accountability and performance.”

With the help of President Debra Hazelton, they pushed the 40:40:20 goal for gender diversity for the board, senior management, middle management and workforce into general. This decision would have made the administrators of the board of directors of the AMP pale in 1992.

Tips

George is confident that AMP’s financial advisory model is suited to providing affordable advice to Australians and will work well for AMP shareholders.

She says wealth management and banking agree to be under one roof, although AMP operates the businesses separately. She says the superannuation and family home are the two biggest assets of Australian households, and AMP can bring its consultancy expertise to that equation.

The AMP of the 1990s relied heavily on selling life insurance policies through a network of 8,000 life insurance agents, many of whom were paid more than the CEO.

AMP’s accounts showed how unsustainable its business model was. It paid nearly $600 million a year in commissions to life insurance agents.

But these commissions had failed to retain customers, judging by the fact that policy surrender rates were rising at an alarming rate in the early 1990s due to poor investment performance and the attractiveness of policy managers. funds such as BT.

George says the only commissions paid by AMP today are to mortgage brokers, who distribute about 90% of the home loans sold by AMP Bank.

Regulatory structures

AMP’s business is heavily regulated to the point where it may not be able to offer advice to people who need it.

But George says his success does not rest on the Albanian government changing regulations.

She welcomes comments from Assistant Treasurer and Minister of Financial Services Stephen Jones on legislative reform to make advice more accessible.

“I think a regulatory change would be good for the boards, in particular, but our strategy certainly doesn’t depend on it, and I’m not going to make it depend on it,” she says.

“However, I think the new government has addressed this issue of affordable and accessible advice. I think it was probably coming to a head anyway, because it’s clear that the traditional consultancy businesses that existed in Australia have moved into the realm of high net worth.

“Statistics would show there is a real need for guidance in central Australia. I think this government has continued to lead the way.”

George said she was pleased that Jones reaffirmed that the first phase of the quality of advice review would continue.

“But you’ve also seen the Minister’s comments over the past few weeks, on areas where he wants to improve things.”

The AMP of the 1990s had relatively benign regulatory oversight of its activities. But his activity was threatened by the government’s encouragement of compulsory retirement.

The default payment of superannuation into industry funds diverted the flow of money from commission-based sellers, and preferential treatment was given to drawing money directly from the funds.

It fundamentally changed power through the financial system. It has moved from shareholder-owned organizations to mutually-owned organizations.

Ironically, the mistake made by the board of the AMP Society in the late 1990s was to trade its position as the fifth largest mutual life insurance bureau in the world with over 5 million assured to become a shareholder-owned entity beholden to unstable financial markets.

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