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Australia's AMP under pressure as pension clients exit

Published 10/05/2019, 01:22 PM
© Reuters. FILE PHOTO: The logo of AMP Ltd, Australia's biggest retail wealth manager, adorns their head office located in central Sydney, Australia
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By Paulina Duran

SYDNEY (Reuters) - Australia's AMP Ltd (AX:AMP) has lost at least one major pension contract while other companies are reviewing their relationship with the wealth manager, which has struggled to stem a client exodus following revelations of serious misconduct.

Two sources told Reuters that grocery wholesaler and distributor Metcash (AX:MTS) had dropped its long-term pension contract with AMP, while other client and market sources said at least four other companies were reviewing their contracts.

Coca-Cola (NYSE:KO) Amatil Ltd (CCA) (AX:CCA), an AMP client since 2005, confirmed its mandate was currently out to tender.

All the sources requested anonymity because the information is not yet public.

Under Australia's compulsory pension system, companies must select a "default" pension fund to receive 9.5% of a worker's salary if the worker does not nominate their own fund, representing strong fee income to the selected wealth manager.

In the last 12 months, more than 10 companies have removed AMP as their preferred fund, including apparel retailer Glassons and Australia Post, and switched to rival AustralianSuper, a source with direct knowledge of the mandate changes told Reuters.

The exits follow harsh criticism of AMP at a government-ordered Royal Commission inquiry into misconduct in the financial sector. AMP was singled out in evidence for wrongfully charging fees to clients and attempting to mislead regulators.

The reputational fallout and an unusually large number of ongoing reviews by long-term clients has weighed on AMP's share price, which has lost two thirds of its value over the past 18 months.

AMP said in an emailed statement on Thursday that the "significant majority" of major clients that have formally reviewed their mandates over the past year had stayed with AMP.

AMP "supported" more than 53,000 large and small Australian businesses with their employees' superannuation arrangements, the statement said.

AMP last month told the market it had retained more than 20 large corporate mandates, without adding details.

Grocery retailer Woolworths (AX:WOW), one of AMP's largest corporate clients, had retained its mandate following a recent review, while oil supplier Caltex Australia (AX:CTX) also remained a client, sources said.

CLIENTS DRIVE HARD BARGAIN

Still, the exits are being used by some clients to drive a better bargain, putting further pressure on AMP's already shrinking margins.

"AMP is trying very, very hard to keep our business," said one executive whose company is reviewing a pension mandate. "We will consider what they have gone through and their brand, but if we stay it will be on a substantially better deal."

AMP's flagship wealth management unit reported A$3.1 billion ($2.1 billion) in net outflows, 13% of which were from its corporate superannuation business, in the six months to June. It forecast further corporate outflows of about A$700 million in the short term.

Morningstar estimated the unit has seen net outflows worth close to 4% of assets under management since the Royal Commission started uncovering poor business practices in mid-2018.

Metcash, which has more than 6,300 employees, has replaced AMP with appointed SunSuper, the two sources with knowledge of the mandate said. Metcash and SunSuper declined to comment. The size of the mandate has not been disclosed.

© Reuters. FILE PHOTO: The logo of AMP Ltd, Australia's biggest retail wealth manager, adorns their head office located in central Sydney, Australia

($1 = 1.4806 Australian dollars)

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