Banking royal commission: AMP has failed to comply with new laws on charging fees

AMP has the ability to stop fees being charged to comply with new laws, but has not done so, the royal commission heard.

AMP has the ability to stop ongoing fees being charged through its investment platforms in order to comply with laws that say clients have to opt-in to paying them every two years, but has not done so, the financial systems royal commission has heard.

The financial services powerhouse has also not produced a benchmark report, checking whether the fees charged through its investment platforms are competitive with the rest of the market, for 18 months.

And it has not reduced fees on two platforms internally benchmarked as “red”, or uncompetitive, the commission heard.

The operations of the financial services powerhouse are under the microscope at the commission for a second day, following a bruising session yesterday that exposed it misled the corporate regulator 20 times and slashed 4.4 per cent from its share price.

It comes as Treasurer Scott Morrison warned that AMP executives could face jail time after company representatives confessed in the inquiry to charging customers for services they did not receive and for misleading the corporate regulator.

AMP shares have also continued to slide following the royal commission revelations, falling another 1.2 per cent by 11.45am (AEST) today - their lowest level since November 2016. Yesterday, more than $600 million was slashed from AMP’s market capitalisation.

This morning, AMP’s head of platforms, John Keating, said the company relied on audits of financial planners to detect when unauthorised fees were being charged.

Under Future of Financial Advice (FOFA) reforms that came into force in 2013, it is against the law to charge ongoing fees to planning clients unless they opt in every two years.

Platforms offer investors the ability to invest in a range of funds through a single point of contact.

Asked by counsel assisting the commission, Michael Hodge, QC, if there was any technical reason why AMP could not automatically require advisers to confirm clients have opted in every two years, Mr Keating said it was “certainly possible to do”.

“I think that’s certainly a key theme when we think about platform development in the future,” he said.

Asked if AMP had considered taking this approach across its platforms, he said: “Not to my knowledge.”

This was because there were controls in place separate from the platform, he said.

He agreed with Mr Hodge that these controls were so that the AMP financial services licensee that authorised a particular adviser might audit that adviser, discover no services were being provided, and contact the platform to turn off the fees.

Mr Hodge asked: “Are there any other controls in place?”

“No,” Mr Keating responded.

He agreed that after FOFA came in, AMP started producing benchmark reports that gave platforms a colour code based on how competitive they were with the offerings of other market players.

This was to help enable advisers to comply with a requirement under FOFA that they act in the best interests of clients.

However, the most recent such report produced by AMP was in October 2016.

Asked if that meant he wasn’t aware of whether the competitive position of AMP platforms had become better or worse since then, Mr Keating said: “That’s right.”

He also agreed that from AMP’s benchmarking reports he knew since 2015 that there were clients left in two platforms that were charging uncompetitively high fees.

Nonetheless, AMP decided not to adjust its price.

“We just made the decision to leave them as they were,” he said.

He denied existing clients were “trapped” in the platforms.

Meanwhile Mr Morrison said the behaviour of AMP revealed in the hearings was “deeply disturbing”, as he talked up the investigation into the company by the Australian Securities and Investments Commission.

“What has occurred here and what has been admitted to in the royal commission by AMP is deeply disturbing,” Mr Morrison said.

“They have said that they basically charged people for services they didn’t provide and they have admitted to statements that were misleading, to ASIC and to their own customers, and this is deeply distressing.

“This type of behaviour can attract penalties which include jail time. That’s how serious these things are. I am very reassured by the fact that these matters were already being pursued by ASIC and will continue to be pursued by ASIC.”

Mr Morrison was strongly against the banking royal commission but reluctantly agreed to establish one because of fears government MPs would cross the floor of parliament and vote in favour of one with Labor and the Greens.

Kenneth Hayne

Key players

Commissioner. A former High Court judge, married to current High Court judge Michelle Gordon. During the hearings he has been tough on banks slow to cough up information required by the commission and dropped hints he is concerned about whether they have a willingness to comply with the law of the land.

Rowena Orr

Key players

Senior counsel assisting the commission. A Melbourne QC with razor-sharp cross examination skills and a background focusing on the intersection between the criminal and commercial worlds.

Philip Crutchfield

Key players

Melbourne QC representing AMP. The wealth manager is in the commission’s sights in this round of hearings, which focus on the scandal-prone financial planning sector.

Matt Collins

Key players

Melbourne QC - and president of the Victorian Bar - representing ANZ. Best known for his defamation work, including representing actress Rebel Wilson in her multi-million-dollar win over Bauer Media.

Charles Scerri

Key players

CBA’s counsel is a Melbourne QC who specialises in representing the big end of town and government agencies. The bank’s well-known track record of scandal in its financial planning business is set to get another airing at the commission.

Neil Young

Key players

NAB’s long-time go-to QC is not to be confused with the Canadian singer-songwriter of the same name - but is very much a rock star at the commercial bar.

Mr Morrison this morning responded to the revelations in the royal commission by talking up an existing probe into AMP by the corporate regulator.

“I can confirm that investigation has been under way for some time and that as part of that investigation ASIC has received many thousands of documents as it has undertaken a number of examinations of AMP staff,” Mr Morrison said.

“ASIC is also pursuing full compensation of impacted AMP clients. ASIC takes these allegations of false or misleading statements as does the government and this is a significant aspect of the investigation.

“As you can clearly see, ASIC has been engaging closely with the royal commission on a range of matters including current and ongoing investigations.”

With Greg Brown