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A stronger AMP eyes the self-managed pie

AMP has regained an advantageous position in the wealth management sector through investing capital to cut costs. But there is work to be done if it wants a piece of the self-managed funds market.
By · 21 Feb 2014
By ·
21 Feb 2014
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Many Australian companies will need to duplicate the trial AMP has been through as it reconstructs its operations to adapt to the 21st century. We are all familiar with how media companies have had to adapt. AMP shows that the requirement for basic change extends over a wide net and in many cases it requires substantial investment. That’s why I found the KGB interview with AMP chief executive Craig Meller (to be published later today) fascinating.

Meller joined AMP in the UK in 2001 from Virgin Direct. AMP has been involved in extensive change for some four years but Meller this week committed to investing $320 million over three years to achieve $200 million in annual cost savings. Too few Australian enterprises are now prepared to make the required investment. Many will be destroyed as a result (A fragile economy deals a confidence blow to business, February 20).

When Meller joined AMP in 2001 it had a distribution system that involved very high commissions and huge costs. AMP had no technology advantage but it had a good brand, albeit declining. But in the first decade of the 21st century AMP’s embedded weakness saw it lose market share to both Industry funds and self-managed funds. Had AMP not recognised its weaknesses it might have gone out of business.

Under Meller’s predecessor, Craig Dunn, AMP began tackling the outmoded commission structures and Dunn obtained scale via the bargain-priced acquisition of the AXA Australian operation. That not only delivered AMP scale and cost reductions, but it also delivered the so-called north platform which has enabled AMP to administer $4 billion in funds and use that administration to promote its products.

Meller now believes that his cost structure is below the industry funds and the bank-owned retail rivals. And the $320 million investment potentially will create an enormous cost advantage. Meller has not announced that he will promote on the basis of costs but it’s in his armoury.

After decades of trying to stamp out self-managed funds Meller admits that most self-managed funds view organisations like AMP with great suspicion. He says that over time he believes he can sell self-managed funds infrastructure and Asian managed funds, plus other products they cannot gain access to via share markets.

To gain a slice of the self-managed fund market AMP has a lot of ill feeling to overcome. Meller will need to translate his low costs to low management fees and commissions.

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Robert Gottliebsen
Robert Gottliebsen
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