AMP will fight for vertical integration

David Murray says he will have a completely open mind about the structure that AMP needs to have in the future. Mike Wilkins says it is too early to tell what the business needs to look like as it attempts to reform itself.

But both men are adamant that the controversial vertical integration model – under which financial services companies both manufacture products and distribute them – is not the cause of the sector's ills.

Murray, who was announced as AMP's chairman in waiting on Friday, was his usual pragmatic self as he spoke to The Australian Financial Review from his home on Sunday afternoon.

What convinced him to join AMP was an urge not just to help that company, but to help restore an entire sector that has been his professional life.

Mike Wilkins says it is too early to tell what the business needs to look like as it attempts to reform itself. Jessica Hromas

"The financial system is at risk now of losing the confidence of the community and that won't change unless the major pillars in that system each do something to restore confidence in their own constituencies," he says.

But while many in the sector are sending a signal that vertical integration is more trouble than its worth – ANZ, NAB and Commonwealth Bank either have exited or are exiting their advice and wealth businesses – Murray continues to believe in the broad model.

"The issues that have got to be dealt with are the way in which advice is given, they way in which it's remunerated, they way in which advice and product work together in those models," Murray says.

His Financial Systems Inquiry, for example, pointedly did not recommend ripping up vertical integration when it reported back in 2014.

"It really is possible we can think we've dealt with vertical integration and not deal with the actual issues," Murray said on Sunday.

Earlier in the day, Wilkins, who is acting as chief executive after the departure of Craig Meller (but will step back as executive chairman when Murray arrives in June) backed his new chairman's view.

He said the key to vertical integration was transparency.

"We need to make sure that the products and services offered are at least the equivalent of others in the marketplace. We need to have those other alteratives available … so consumers can make an informed choice."

Both Murray and Wilkins are good leaders to have in a crisis – both are deeply experienced, and provide the sort of clam demeanour that AMP investors so badly need right now.

With this in mind, you wouldn't expect them to suggest they favour ripping apart the vertical integration model that lies at the heart of AMP as the company navigates this crisis.

But we know from the minutes of AMP's October 2017 board meeting, released as part of a treasure trove of documents by the royal commission, that the issue of vertical integration has vexed the board.

According to the board notes, a discussion around a "draft group strategic report" from Craig Meller looked at "the advantages and disadvantages of vertical integration".

No doubt some of the points made by Wilkins and Murray on Sunday would have been around the board table on that Monday morning last October.

But so much has changed since then.

Whether or not the royal commission recommends an unwinding of vertical integration, and whether that would be the right thing is almost a moot point at the moment.

The public's confidence in this model has been shaken. Perhaps more important, the community's trust in the sector to manage the inherent conflicts that the model creates is at rock bottom.

Might Murray, Wilkins and the new CEO be eventually forced to look at an AMP restructure that effectively breaks up the business? Maybe.

But AMP's model is more reliant on vertical integration than any other large financial institution. The 186-year-old company won't give it up without a fight.

JAMES THOMSON

j.thomson@fairfaxmedia.com.au

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