'Unacceptable': Exec admits AMP put investors before customers

AMP’s culture that put shareholders before customers caused the country’s biggest wealth manager to mislead the corporate regulator at least 20 times, the banking royal commission has heard.

The admission, by AMP’s head of advice and New Zealand, Anthony “Jack” Regan, came as the royal commission on Tuesday continued its probe into AMP’s long-running practice of charging some of its financial planning customers fees for services they did not receive.

AMP's head of advice, Jack Regan: 'I think they [emails] show a culture that is not as robust as it should be.'Credit: Eddie Jim

The royal commission heard AMP's managing director of financial planning, Michael Guggenheimer, was approving the ring-fencing of clients despite being told by more junior staff over email that doing so would be unlawful. Ring-fencing was a process AMP used to place "orphaned" clients of planners who had retired into a single pool where they were still being charged fees for services they did not receive.

Another email showed Mr Guggenheimer telling a more junior manager “we are writing them down on day one, which is simply going to exacerbate P&L (profit and loss statement) issues”. At the time, AMP was in receipt of legal advice that its ring-fencing process was in breach of the law.

Mr Regan told the royal commission that cultural issues had caused senior staff at the wealth manager to ignore legal advice and concerns.

“I think there are reasons to be concerned. I think they [emails] show a culture that is not as robust as it should be,” Mr Regan said in response to questions from counsel assisting Michael Hodge, QC.

Mr Hodge said: “When you say not as robust as it should be, what we seem to be seeing is that a conscious decision is made to protect the profitability of AMP at the expense of its licence.”

Mr Regan replied: “It’s clear that we preferenced shareholders in that exchange at the expense of customers.”

He said that practice was “unacceptable” and there were several areas where AMP needed to “improve significantly”. "It starts with culture ... culture is the invisible hand that ensures people are making the right decisions,” Mr Regan said.

The impact of AMP's cultural issues included AMP trying to avoid paying compensation to customers affected by its fee-for-no-service breaches, Mr Regan admitted under questioning.

Mr Regan was taken to a report by AMP’s lawyer, Clayton Utz, in 2017 that was highly critical of the wealth manager and found AMP had systemic issues within its planning arms that led to it charging customers fees for no service.

“At times we observed the stance of AMP and its interactions with ASIC was to seek to negotiate a commercial outcome with ASIC on the scope of the compensation payable to customers,” the Clayton Utz report said.

Mr Regan said he accepted Clayton’s Utz’s finding.

Mr Hodge also presented an internal AMP report that stated that if AMP told its customers they were being charged fees for no service it might lead to regulatory intervention and a compensation program. “This would be a negative customer experience,” the report stated.

During the morning session, Mr Hodge took Mr Regan through several instances where AMP had misled the Australian Securities and Investments Commission during the regulator’s inquiry into concerns about AMP charging fees for no service.

At one point, Mr Regan said he had lost track of the number of times AMP had mislead ASIC.

Mr Hodge quipped: "You're losing count ... There's so many you'll have to rely on my account."

Mr Regan said AMP’s dealings with the regulator were also a reflection of the company’s cultural issues. He said AMP had been conducting a cultural review since 2015.

ASIC has been reviewing the wealth management arms of the big four banks, AMP and Macquarie. Part of the review is a probe into wealth managers' charging of fees for services they didn’t receive.

AMP’s appearance comes at the royal commission puts misconduct in the financial planning sector under the spotlight. Representatives from Commonwealth Bank, ANZ Bank, Westpac and National Australia Bank will also be called to give evidence.

The hearing before Commissioner Kenneth Hayne, QC, continues.