AMP chairman David Murray has given the new chief executive Francesco De Ferrari a mandate "to reshape AMP's business model", which means that the capital giant, which is in trouble, can be devoid of paying commissions for legacy products.
While the move to pick Mr. De Ferrari, 49, from the top of Credit Suisse's private bank in Southeast Asia, should not be read as part of an attempt to make AMP more expensive, Murray said that the culture of Credit Suisse is one that he admired, suggesting that AMP could use its advisory model as a template for restoring customer confidence.
After AMP & # 39; s interim results earlier this month revealed a slump in cash inflows in its core asset management activities due to brand damage inflicted by the Royal Commission of Hayne, Mr. Murray described the new executive board as a & # 39; proven change agent & # 39; that would lead the transformation needed in our business ".
With the head of the royal banking commission, Kenneth Hayne, who calls for the removal of the link between the sales and the financial advisor, he pays a "main challenge" for his research, and the expectations are increasing that he will insist on an end to lagging commissions for legacy products. The future of financial advice legislation banned most commissions, but existing agreements were banned. AMP continues to charge so-called grandfather commissions, although rivals Macquarie Group and BT Financial Group of Westpac Bank recently said they would banish them.
But Mr. Murray said that Credit Suisse, where he has also worked as a senior advisor in recent years, understands very clearly that if you add value to the customer in a way that does not deform their portfolio for them, you build a lot faster with them, because you do not have to have a discussion about & # 39; why did you choose this product? & # 39 ;.
"I have seen this up close and understood from my time at the Future Fund and the financial system research, but [Francesco] has actually done it on the ground. I think that's good for the AMP customers, "he said.
Market analysts welcomed the appointment. "We see a positive working relationship between chairman and CEO as essential for the recovery of AMP," says Morgan Stanley analyst Daniel Toohey. AMP shares closed 6 ¢ to $ 3.39, but the decline reflected the ex-dividend share trading.
AMP brought Mr De Ferrari from Singapore to Australia with a potential payout of $ 17.7 million, in addition to a potential annual salary of $ 8.3 million, including a base salary of $ 2.2 million and the potential for short and long term bonuses. The total package reflects that he will abandon substantial existing incentive arrangements at Credit Suisse and includes the so-called "buy-out" and "recovery" incentives to encourage him to reverse the share price of the AMP share.
The CEO of Credit Suisse Australia, John Knox, who has been working closely with Mr. De Ferrari for many years, said he helped differentiate his private bank from the market convention of having a commission-based company, thereby providing an "advisory" , with long-term trusted relationships ". These were based on core principles of customer education and strong ethics.
"I've heard him say," We need to teach our customers how they can be better investors, "said Knox," because if they're better investors, they'll earn more money and we'll be better off. "Another perspective is that some people succeed a company on figures, with him it's about how we can make a person grow at all levels, the other part is about code of conduct, ethics and behavior Credit Suisse has the standard to behave absolutely in the right way. "
The Ferrari, which is starting its new role on December 1, said in a statement that although 2018 was "clearly a challenging year" for AMP, he "is confident that we can regain confidence that will support the recovery of business performance" . He added that he "was encouraged by the change process already initiated by the board and I am determined to accelerate this change".
In an interview in 2016 during a visit to Sydney, Mr. De Ferrari said that commission payments to wealth advisors and brokers in Australia were full of conflicts of interest and "sooner or later it is inevitable that clients will wake up and they will see a system that does not make sense."
Mr. Murray said that the royal commission had shown that legacy commission payments were an overhang of history, given that the superannuation was initially implemented by life insurance companies that "traditionally had strong sales agencies and structures in command." The market had "been too long to adjust, and the royal committee has been able to uncover that," he said The Australian Financial Review.
"If we deal philosophically with this, the problem with commissions is that committees in advising a customer on structuring their business can lead to a disruption of the structure of their portfolio and therefore not to the goals that customers really need to achieve."
Interim CEO Mike Wilkins, who stepped into the gap after revelations about misconduct at the royal committee that led to the resignation of former CEO Craig Meller and chairman Catherine Brenner, will work with Mr. De Ferrari "to ensure smooth delivery" before returning to the board as a non-executive director.
As a further encouragement to reverse the fate of the controversial business, if Mr. De Ferrari can bring about an increase in the share price that meets a number of hurdles – the last transaction that is on February 15, 2023 higher than $ 5.25 – will he's ready for nearly $ 6 million in shares. Mr Murray said that the pay package was geared to restoring the lost value of shareholders during the past year.
"We have designed a reward structure to stimulate the recovery of AMP and recognize the level of challenge in the task before us, and its remuneration and incentives are directly aligned with the interests of shareholders," said Mr. Murray.
Implementing technology in a more advanced way would also be a strategic core focus for Mr De Ferrari, said another investment banker working with him in the region. "He has a clear vision on how technology will guide the future of the company and how companies should embrace this and use it," says the banker.
Mr Murray said: "He believes, like me, that you will not have a competitive, elegant response to the entire asset management problem in the financial sector without major technology – he is a strong proponent of technology."