AMP embarks on 'whole of wealth' cross-sell

AMP chief executive Francesco de Ferrari has doubled down on the one stop shop financial services model as the key to its rehabilitation even though it heavily criticised by the Hayne royal commission.

The boss of the embattled group outlined his vision for a combined wealth management, mortgage and retail banking business, earning a bouquet from one of AMP's staunchest analyst critics and a welcome boost to its share price.

"This year we will take our first steps in developing a whole of wealth banking and super offer to deliver benefits to our clients," Mr De Ferrari told a media briefing in Sydney.

The strategy is at odds with the big four banks, who are largely abandoning the one stop shop model after it was slammed by the royal commission for fostering of cross-selling excesses, conflicts and abuses.

Shares in AMP rebounded on Friday, rising 1.49 per cent by 3pm after Bell Potter analyst Lafitani Sotiriou switched his recommendation to 'Buy' for the first time in four years.

The upgrade followed AMP's handing down of a $2.47 billion statutory loss for the 2019 full year on Thursday, accompanied by a rare corporate update on the company's turnaround project.

The message shone new light on the thinking behind the merger of AMP's banking and wealth management divisions into a single unit under the leadership of Alex Wade, announced in October 2019.

Speaking to The Australian Financial Review, the CEO elaborated on his "whole of wealth" vision, confirming speculation that the end goal is to roll mortgage customers into its soon-to-be-revamped superannuation suite, and grow its residential loan book with referrals from in-house financial advisers.

"Ultimately it boils down to if you are really trying to build a client-centric business that is solving client problems, then it is very difficult to … limit [the discussion] to superannuation," Mr De Ferrari said.

"If you really want to provide advice you have to look at the overall picture - whole of wealth - because that will drive different solutions to if you are just focusing on a single product."

He made the point that 60 per cent of Australian investor assets are in real estate, suggesting financial advice that omits consideration of the nation's most popular asset class cannot be truly holistic.

The strategy resembles the financial supermarket push pursued by the big four banks and pioneered by AMP chairman David Murray when he was chief executive of the Commonwealth Bank in the early 2000s.

AMP spokespeople emphasised that the whole of wealth strategy is part of the troubled company's pledge to put customer needs first, having been accused of putting profit over people.

But it also opens the door to criticism that AMP has re-committed to the vertical integration model and system of cross-selling of in-house products not in customers' best interests.

Mr De Ferrari said he was conscious of not letting history repeat itself.

"We need to ensure that what we are giving the client is best of breed solution and therefore we have to be transparent as to how we go about selection and if it is an inhouse product, that it is passing the best interests test," he said, when asked about the risks of further integrating the models.

'End of the tunnel'

However, Mr Sotiriou, a longstanding critic of AMP's vertically integrated model, was not concerned about the potential for conflicts of interest in the new vision and recommended clients buy AMP stock for the first time since August 2016.

"We believe we can see through to the other end of the tunnel for AMP for the first time in many years and reverse our longstanding Sell rating," he wrote in a client note.

"This is not done lightly, nor is it done in isolation of the issues the company is still facing, as there are many. Instead, we believe AMP has put enough of the issues on the table."

Bell Potter upgraded its underlying earnings per share estimates for AMP for 2021 and 2022 by 8.7 per cent and 14.7 per cent respectively, although it expects net losses for at least the next three years.

The analyst told the Financial Review that he is not confident AMP will find "success" in its strategy to cross-sell mortgages and financial advice, explaining it has been a goal of past chief executives of the company.

AMP's planned exit from the life insurance business, which inched closer as the company announced the sale was approved by the Chinese authorities, meant a key element of the problematic vertical integration of the past had been eliminated, he said.

Reform required

Nevertheless, execution of the whole of wealth strategy could face some hurdles as the corporate regulator hunts for breaches of the best interests duty, with a particular focus on in-house product bias.

That fiduciary duty, introduced for financial advisers in 2012, was last week extended to mortgage brokers as the federal parliament passed legislation acting on a royal commission recommendation.

Going forward, any loans recommended by a broker will need to be demonstrably in the customer's best interests, and not just "suitable", which was the previous test.

In addition, the extent to which financial advisers can advise on direct property is limited under their licence and professional indemnity insurance arrangements.

Licences for credit and financial product advice remain separate and few professionals maintain both, although the Productivity Commission suggested possibility of a combined licence in March 2018.

Mr De Ferrari said AMP would work with governments and regulators to help push through reforms that would allow consumers to access more affordable and appropriate advice.