AMP underestimated the scale of its fees-for-no-service problems that it at one stage feared could end up costing more than $1 billion.
Australia’s largest wealth manager now plans to accelerate its compensation program but still faces a hefty $778 million bill.
AMP’s acting CEO Mike Wilkins said the group did not fully appreciate the size and complexity of the fees-for-no-service issue when it was discovered in 2016.
“I think that AMP believed, as did the industry, that this was not such a large issue,” he told the banking royal commission on Tuesday.
Even before AMP’s fees scandal aired at the royal commission in April, its board was becoming increasingly concerned that the remediation process was proceeding too slowly.
AMP initially thought its remediation program could be completed in five years.
It then realised it would take nine years to complete at a cost of $1.185 billion.
In the most extreme cases, it would have meant customers charged fees when no advice service was provided in 2008 had to wait up to 17 years for a refund.
Mr Wilkins said the time frames were unacceptable, not only because of what the community expected.
“There’s certainly a community expectation about that, but it was more important to AMP that customers be remediated as quickly and as completely as possible,” he said.
AMP has now changed its approach, dedicating 150 staff to the remediation with the expectation that it will be completed within three years.
It has estimated it will cost $778 million to complete the remediation program for clients given inappropriate advice or charged fees for no service.
It expects to pay $440 million to clients, mostly for fees for no service, but is still reviewing the files of more than 217,000 customers.
AMP will not begin refunding customers until it has reached agreement with the corporate regulator on its approach, but has backed down on its attempt to exclude clients who paid under $500 a year in fees.
At the same time, AMP has revealed it may have another potential fees-for-no-service problem and is reviewing charges to employer superannuation plans since 2008.
It has found issues with the management and monitoring of fees charged to workplace superannuation members and those received by AMP advisers, the inquiry heard.
The fees-for-no-service scandal revealed at the royal commission in April led to the departure of AMP’s CEO and chair, as the inquiry’s barristers suggested AMP face criminal charges for lying to the corporate regulator.