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Here’s Why AMP Limited (AMP) Is Getting Hit Hard

On Friday morning AMP Limited (ASX: AMP) announced a 2018 trading update which detailed its plans to “reset” the business. The announcement follows months, if not years, of bad press over poor levels of financial advice given by some of its advisers.

AMP Share Price

Source: Google Finance.

In a public filing on Friday morning, the financial advice and superannuation company said it will make allowances for up to $290 million (after tax) as compensation for customers who received poor advice going as far back as 2008. This follows ASIC reports 499 and 515 which require an industry-wide review of advice.

AMP said the ‘look back’ review will cost as much as $50 million per year for three years.

“Today’s announcement reflects our commitment to take decisive action to reset AMP and establish a platform from which the business can recover rapidly,” AMP’s acting CEO Mike Wilkins said. “We’re facing squarely into the issues that have impacted our reputation and the community’s confidence in AMP.”

Following the fallout from the Royal Commision, in addition to scandals of poor advice, Wilkins said, “customer needs are our immediate priority” and AMP is making a conscious effort to increase community expectations.

Sharing the spotlight with AMP at the Royal Commission was Commonwealth Bank of Australia (ASX: CBA) and National Australia Bank Ltd. (ASX: NAB), as well as many others.

“We know it will take time to earn back trust, however today is an important milestone in that process,” Wilkins said.

Some Super Fees Slashed

AMP announced it will lower its fees on its MySuper products, which will affect about 700,000 of its customers. This will cost AMP’s wealth business around $50 million of revenue in its 2019 financial year.

A further $35 million will be invested in compliance systems each year going forward.

Profit Guidance

Excluding the allowance for the compensation and $55 million of other one-off costs, AMP expects to report an underlying profit of between $490 million and $500 million for the first half of its 2018 financial year.

AMP said it is targeting dividends over its full 2018 financial year at the lower end of its guidance range, being 70% to 90% of profit.

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