Banking royal commission: AMP boss agrees group may face fresh fee scandal as compensation costs blow out

AMP’s acting chief has revealed compensation costs have blown out to $778m as he notes it could face another fee scandal.

AMP’s acting chief Mike Wilkins has admitted to a blow out in costs to $778 million in its embattled advice business, to pay back customers and account for lost earnings, as the group seeks to rectify poor advice and charging fees for no service.

In often damning statements, Mr Wilkins said, however, that AMP is yet to agree key points on repaying customers with the corporate regulator which is holding the program up. He added that there were two outstanding issues being debated with the Australian Securities and Investments Commission.

Documents tendered to the royal commission showed that under a base case or worst case plan it would take AMP nine years to repay customers that received poor advice or fees for no service. AMP has ramped up on its work on the program — with a team of 150 people working on it — and, if it reaches agreement with ASIC, Mr Wilkins said it was targeting a three-year remediation program.

“Our sampling has shown that the major timeframe that there were issues were 2008 to 2015,” Mr Wilkins said, noting that nothing stood out as the “root cause” of the failings.

AMP’s acting chief Mike Wilkins

Mr Wilkins also conceded it was reasonable for advisers or any profession not to charge a fee if no service was rendered.

“It would be a normal expectation that people would understand,” he said. “You would think … where a fee is charged a service would be delivered.”

AMP lost its chief executive Craig Meller and chairman Catherine Brenner earlier this year as the extent of the problems in its advice business came to light in the royal commission, and the conduct of its board and management were called into question.

Mr Wilkins confirmed the three-year goal to complete the main remediation plan at a cost of $778 million — including conducting the customer reviews and lost earnings for inappropriate advice and fees for no service.

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Senior counsel assisting Michael Hodge QC questioned how that married up to AMP’s disclosure to the ASX which allowed for a $291 million post tax provision.

Mr Wilkins provided calculations that on a pre-tax basis the figure was $415m and the company had also flagged a $50m hit last year, and that latter figure would recur on a post tax basis for annually for three years.

Mr Wilkins was pushed further to admit that of $1 billion in total ongoing advice fees earned between January 2008 and June 30 2017, about 20 per cent were at risk.

When asked about a further eight breaches by AMP in 2016 in its workplace superannuation and employer plans, Mr Wilkins admitted the group could face another fee scandal.

“We are still going through the process of understanding this,” he said, noting that PwC was conducting a review of conduct and issues.

The outstanding issues with ASIC on starting advice remediation was deciding on the quantum of services provided, and AMP’s proposal to collect testimonials from customers that they had received appropriate service.

Mr Hodge was quick to point out that until AMP agreed with ASIC on the final issues, it was unable to start the bulk of the customer repayments.

Mr Hodge also highlighted data from the prudential regulator which showed AMP had a high ratio of banned advisers in the industry at 9 per cent, followed by Commonwealth Bank at 5 per cent.

He questioned whether some measures had stalled as AMP awaited its new CEO Francesco De Ferrari to start on December 1.

“A new CEO is coming into the organisation and has been given a mandate to transform the organisation “ Mr Wilkins said in response, adding that as acting boss he had made it “very clear” what behaviours were acceptable and unacceptable.