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[The Wrap] Divorce for AMP Wealth Management and AMP Capital

AMP Wealth Management's decision to move $10 billion of funds to a passive mandate in international hands leaves more questions than answers.

Saturday, October 24th 2020, 6:36AM 3 Comments

by Philip Macalister

Talking to people around the market it's clear not many people saw AMP Wealth Management's switch to passive coming – least of all its sister company AMP Capital which currently manages Wealth's funds.

The funds total close to $10 billion with $6.2 billion in KiwiSaver and more than $3 billion in AMP’s workplace savings product the New Zealand Retirement Trust (NZRT).

The relationship between Wealth and Capital has been pretty rocky for a number of years. But now it's a full-on divorce.

One question which makes little sense is how does a company like AMP actually own a funds management business which specialises in active management then see one of its other companies, in this case AMP Wealth, go off and embrace passive management?

Another question is why not get AMP Capital to continue to manage the money under a different mandate?

If the market didn't see this coming then clearly AMP's KiwiSaver members were in the dark too. This raises a question which gets into the topical area of clients’ best interests, conduct, etc.

The FMA has many times said it wants to make sure that funds are true to label. For KiwiSaver members, and for that matter companies who use NZRT, the label on the tin said they were getting an active management proposition. Next year the contents of the tin will be very different – and at this stage the price hasn’t changed.

If that is what these investors wanted then they should be heading off to another investment shop which offers that product.

The only saving grace (for the company) is that AMP KiwiSaver has the highest number of default members. According to Ministry of Business, Innovation and Employment figures 90,000 people were default members which is about 40% of its total membership.

These members arguably don't know much about their investment and a change will wash over their heads.

As for other members and NZRT customers, including the Air New Zealand superannuation scheme, they are likely to be fair game for other fund managers.

It’s also astounding to see AMP make this announcement, but not change its fees. They have indicated they will come down, but to what level is still unknown.

The move feels very defensive, especially as AMP has copped lots of criticism for its poor performance and fees. But also with default schemes coming up for tender again AMP may well be positioning itself to retain its default status.

This will be harder as MBIE have indicated it will only appoint five schemes to default status this time around rather than the current nine.

Another problem AMP Wealth may face under its new model is that MBIE is placing new ESG requirements on default providers.

How BlackRock, a global manager, is going to manage New Zealand assets and manage to actively engage with companies on ESG issues is a mystery which has some of the well informed in the industry scratching their heads.

Tags: AMP AMP Capital AMP Wealth Management Blackrock Opinion

« AMP KiwiSaver members should expect major fee reductionWestpac dropping adviser wing to Forsyth Barr »

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Comments from our readers

On 23 October 2020 at 4:50 pm Contrarian said:
To be fair, the change doesn't kick in til June 2021, so plenty of time for AMP to reassess fees... Also plenty of time for clients to change providers... I've already done mine!
On 27 October 2020 at 4:30 pm notreallythen said:
It doesn't make sense for regular clients why they're shifting to passive. AMP Capital's underperformance is not reflective of the majority of other managers.

This appears to be a political decision to mean its impossible to sell AMP WM NZ as any buyer would naturally seek to remove AMP Capital as manager for synergies and this simply eliminates this possibility. It seems more likely that local management are taking advantage of the ongoing issues in Australia to mean they cant get sold and lose their jobs.
On 28 October 2020 at 9:26 am Pragmatic said:
I don’t believe that this move has anyone’s interests other than AMP shareholders in mind, by lowering costs & quarantining margins. A classic move to attract the maximum sale price at the expense of consumers.

FMA/ASIC: perhaps this would be a useful example for the regulator to demonstrate that that clients interests come first? If nothing else, it’ll put AMP management on notice, as they attempt to explain their actions

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