AMP’s [ASX:AMP] share price has dropped by over 4% this morning after flagging a $290 million cost from the royal commission.
This morning saw a drop to $3.34, which is lower than the wealth management giant’s share price of $3.52 in the depths of the GFC.
It’s not been a great year for the financial advice and asset management business, with scandal after scandal casting a light on dodgy practices. After several class actions and a subsequent hostile media frenzy, this latest news will only further antagonise the market.
Where did AMP go wrong?
The Royal Commission into banking, Superannuation and Financial Services is only doing what it’s supposed to do: investigate. With AMP, there’s clearly been a lot to uncover. Moving on, AMP are required by ASIC to take part in an ‘industry wide’ review of ‘advice provided from 1 July 2008 and 1 January 2009, respectively.’
The company is expecting to report an underlying first-half profit of between $489 million to $500 million in early-August. This is a notable decrease from its previous underlying first-half profit (2017) of $533 million.
The company has also warned investors that interim dividends may be lower than expected. Life insurance or ‘wealth protection’ — one of its main products — is a market already fraught with competition.
AMP has warned investors to expect ‘negligible operating earnings’ over the period as a result of ‘negative experience and capitalised losses’.
Earlier this year, QE partner Damian Scattini called AMP out on its ‘reprehensible’ behaviour, ‘misleading its customers and the market for years.’
What’s Next for AMP?
There’s nothing for AMP to do but to implement a damage control plan, and that’s what it’s attempting to do.
The fallen wealth management giant has promised to take steps to ‘reset the business’ and put aside a $290 million fund for ‘potential advice remediation.’
In other words, AMP will potentially compensate customers who’ve received inappropriate financial advice from its employees.
‘Our remediation provision responds to industry-wide issues raised by ASIC in its reports 499 and 515 and reflects a conscious business response to increased community expectations,’ said AMP’s acting chief executive Mike Wilkins.
‘This remediation program is complex as it will address both employed and aligned advisers, and we understand it is one of the first programs to do so.’
AMP will spend $70 million over the next two years to upgrade its risk management and compliance procedures.
Will these measures be effective in securing market loyalty again? It’s not looking likely.
Editor, Money Morning
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