Banking royal commission: AMP shares mauled over advice scandal

Investors dumped AMP shares yesterday as details of its shoddy governance and poor risk culture came to light.

AMP executive Anthony ‘Jack’ Regan leaves the banking royal commission in Melbourne yesterday. Picture: Stuart McEvoy.

Investors yesterday delivered a vote of no confidence in the Australian financial system’s fifth pillar, AMP, carving 4.4 per cent from its share price in a selling frenzy that erupted as details of its shoddy corporate governance and poor risk culture spilled out into a Melbourne courtroom.

About $600 million was slashed from AMP’s market capitalisation yesterday as the head of its financial advice division, Jack Regan, gave evidence to the banking royal commission that included admitting the company misled the regulator at least 20 times over just one issue.

Evidence before the commission has focused on a “fees for no service” scandal, in which for seven years tens of thousands of financial advice clients paid fees but received nothing in return, but it has also raised questions about AMP’s business model and the behaviour of its board and management.

The commission heard senior management repeatedly pressed law firm Clayton Utz to water down a supposedly independent report into the fees-for-no-advice debacle that was provided to ASIC as part of the regulator’s investigation, including by playing down the role of former head of advice Rob Caprioli and deleting chief executive Craig Meller’s name ­entirely.

Clayton Utz provided 25 drafts of its report to AMP, leading Mr Regan yesterday to express “discomfort” about whether it was a truly independent piece of work and prompting commissioner Kenneth Hayne to call for a more detailed explanation from AMP.  AMP repeatedly told ASIC that charging fees for no service was an administrative error, but emails and other documents shown to the commission over the past two days have shown that it was in fact a deliberate decision made by AMP management.

Those ripped off were clients of AMP advisers, who are largely independent contractors, who had either sold their client books back to the company under a scheme known as “buyer of last resort” or had their client lists transferred to AMP in preparation for onselling them to another adviser, a process known as “ringfencing”. In both cases, this left the client an “orphan”, without an adviser, which AMP has admitted to the commission meant it was unable to provide them with ongoing services for which they had paid, such as an annual review.

The commission heard that in June 2015, Michael Guggenheimer, who was managing director of two of AMP’s licensees, AMP Financial Planning and Hillross, told staff he was “OK for the clients to be quarantined for three weeks to resolve what is being ­purchased so we do not lose the value of the service fees”. This was despite him being told this was against the law and AMP having already made a first report to ASIC that it had breached its licence conditions by charging fees for no service.

$4.55, AMP closed down 21¢

“He acknowledges that by ringfencing the registers and not having the ongoing fees dialled down that we are in breach of our licence,” an AMP executive said in an email sent to other staff at the time.

In another email, Mr Guggenheimer complained about revised policies continuing to charge service fees to clients who were part of books bought by AMP under its buyer of last resort scheme.

“It seems from the note below we are writing them down on day one which is simply going to exacerbate the profit and loss issues and risks we are trying to manage,” Mr Guggenheimer said.

Mr Regan was asked by counsel assisting the commission, Michael Hodge, QC, if he had “personally discussed with Mr Guggenheimer why it was that he was continuing to approve ringfencing even when he was being told by more junior staffers that this was a breach of the licence conditions”.

“No, that was a matter that was dealt with through Mr ­Guggenheimer with the Clayton Utz review,” Mr Regan said. He agreed that there were “reasons to be concerned” about the emails.

“I think they show a culture that’s not as robust as it should be,” he said.

“It’s clear that we preference interests of shareholders in that exchange at the expense of clients ... so that’s a concern,” he said.

Mr Regan said he and the AMP board agreed that the company’s culture needed improvement, including the way it dealt with the regulator.

This should be done “truthfully and frankly”, he said.

“There are a number of areas where we need to improve significantly,” Mr Regan said.

“I think it starts with culture, it goes to governance, it goes to capability, control systems, processes, but culture is the invisible hand that ensures that people are making the right decisions.

“And I think it’s evident, from some of the things that have flowed through here, that that hasn’t happened in all cases.

“I don’t think it’s consistent across all of AMP.”

The commission is today set to hear evidence from AMP’s head of investment platforms, John ­Keating, before moving on to executives from CBA’s notoriously scandal-plagued financial advice business.