Australia’s largest wealth manager AMP lied to and misled the regulator about charging clients fees for financial advice they did not receive, a royal commission has heard.
AMP and the nation’s big four banks have paid almost $219 million in compensation to more than 310,000 financial advice customers charged fees for no service.
A senior AMP executive has apologised to customers over the problem, which the banking royal commission heard had occurred since 2009.
Senior counsel assisting the commission Michael Hodge QC said there was a significant delay in notifying the regulator about the issue and AMP made a number of false or misleading statements to the Australian Securities and Investments Commission about it.
AMP’s group executive for advice Jack Regan accepted that was the case.
The inquiry heard AMP made a deliberate decision to continue charging fees to a group of “orphan” clients for three months when they went into a central pool, despite them receiving no advice services and legal advice that it was unlawful.
“It’s not a surprise that it’s not lawful,” Mr Regan told the royal commission on Monday.
Mr Hodge asked: “It’s just obvious isn’t it that you can’t charge somebody for 90 days for providing services that you’re not going to provide, you agree with that?”
Mr Regan replied: “That’s correct.”
The issue arose when AMP acted as a buyer of last resort, buying an adviser’s client book if they were unable to sell it to another authorised AMP representative.
In some cases system errors were to blame but the inquiry heard AMP did not tell ASIC about the deliberate decision to keep charging the fees.
Mr Regan, who found problems of governance and oversight when he became head of AMP’s advice businesses in January 2017, apologised for the issues.
“On behalf of AMP I apologise unreservedly for the failings in respect of advice and service delivery to our customers and for the regulatory breaches,” he said in a statement to the inquiry.
But Mr Hodge questioned if AMP in fact accepted it had made regulatory breaches, given its submissions to the commission only referred to possible misconduct.
AMP has repaid $3.69 million to 14,000 clients who were charged the fees while in the central pool.
The Commonwealth Bank has paid $117.8 million in compensation over fees for no service, the bulk of the total amount forked out by the big four banks and AMP.
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.
Overall Australians have received more than $380 million in compensation over the past decade after suffering financial loss as a result of poor financial advice.
Mr Kell said 90 per cent of financial advice for establishing self-managed superannuation funds did not comply with duties to act in consumers’ best interests.