Royal Commission Blowtorch Turns To AMP
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Judging by the first day of the second round of hearings by the financial services Royal Commission, financial advice will prove to be an even greater black hole for the banks and AMP than the first round which examined rorts such as poor loan documentation, liar home loans and fraud.
The opening submission from Counsel Assisting, Rowena Orr QC contained a startling list of transgressions that ought to shock investors and others.
Investors mostly ignored the Royal Commission’s alarming disclosures except for Commonwealth Bank and AMP shares, which fell 0.7% and 0.4% respectively, Shares in Westpac were up 0.2%, ANZ shares were up a cent and NAB shares advanced 0.04%.
For example the AMP has admitted to the Commission that it did not tell ASIC it was deliberately charging clients fees and providing no services, instead blaming failed processes.
Hundreds of thousands of Australians have received more than $380 million in compensation after suffering financial loss as a result of dodgy financial advice.
AMP, National Australia Bank and Westpac all made payments that breached a 2013 ban on banks and wealth management businesses from paying kickbacks to advisers, but failed to tell the royal commission about the full extent of this misconduct earlier this year.
The Commission was told that financial advisers working for Commonwealth Bank-owned businesses had also received “prohibited” pay, and gaps in a statement from the bank meant it was not possible to say if there had been further contraventions, counsel assisting Rowena Orr said.
Ms Orr revealed that the AMP didn’t provide detailed information on customers in in-house products to the commission in spreadsheets until 9.30pm on Sunday night, which meant it had not been able to review it yet.
Ms Orr said the three institutions had in recent weeks revealed incidents that fell foul of a 2013 ban on commissions, under the Future of Financial Advice (FOFA) laws.
She said that despite commissioner Kenneth Hayne’s request for banks to set out all instances of misconduct and behaviour that fell short of community expectations in submissions lodged in January, the latest breaches had not been included in these documents, and came to light only as the commission turned its attention to financial advice more recently.
Ms Orr said that since 2013, when the FOFA regime came into effect, AMP had paid hundreds of thousands of dollars in "fee waivers" to financial advisers that amounted to "prohibited conflicted remuneration".
It heard that the Australian Securities and Investments Commission (ASIC) is aware of $383.117 million being paid in compensation over the past decade to clients who had suffered financial loss as a result of financial advice or a failure to provide ongoing advice services.
Up to February of this year, about 306,000 customers of the four big banks and AMP have been paid $216.42 million as a result of fees paid for no service.
Ms Orr said across the five entities, $218.94 million is expected to be paid in total, with more than 310,000 customers affected.
ASIC deputy chair Peter Kell said eight financial services entities had reported breaches to the regulator over fees for no service.
“I think it’s clear from our experience that the firms in question prioritised fee revenue from their advice businesses over the provision of services to the clients,” Mr Kell told the royal commission on Monday.
Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.
At the AFR he was a finance writer, Finance Editor, News Editor and Chief of Staff. At the Nine Network he was supervising producer of Business Sunday for more than 16 years. He has also written for other online and analogue print publications here and overseas.