AMP admits to misleading ASIC 10 times

Financial services firm AMP has admitted to misleading the corporate regulator at least 10 times over a seven-year-long rort.

ASIC deputy chairman Peter Kell. Picture: AAP

Financial services powerhouse AMP has admitted to misleading the corporate regulator at least 10 times over a seven-year-long rort, under which it charged tens of thousands of customers fees for services they did not receive.

AMP initially told the Australian Securities & Investments Commission that the “fees for no service” were charged by mistake. But yesterday the company ­admitted to the financial services royal commission that some of the bogus charges were deliberately levied and it had not been honest with customers.

The royal commission yesterday also heard that AMP — sometimes described as the fifth pillar of the financial system, after the big banks — had since 2009 developed “serious compliance concerns”, a phrase used by ASIC to include fraud and dishonesty, about 81 ­financial advisers.

In its second round of public hearings, which began yesterday before a packed courtroom in Melbourne, the commission is ­focusing on one of the banking ­industry’s most notorious sectors, financial planning.

Counsel assisting the commission, Rowena Orr QC, promised evidence on some of the sector’s worst scandals, including the Storm Financial fiasco and dodgy financial planners at CBA.

ASIC deputy chairman Peter Kell yesterday used his appearance to say that, despite four years of government crackdowns on the sector, poor conduct and consumer ripoffs were so widespread that financial planners were not entitled to call themselves professionals.

He also revealed new ASIC ­research that showed that, nine times out of 10, advisers failed to take into account the best interests of their clients when giving advice about setting up self-managed super funds.

Over two hours, another of the commission’s counsel assisting, Michael Hodge QC, took the head of AMP’s financial advice division, Jack Regan, through statements the company had made to ASIC over the “fee for no service” scheme it operated ­between 2009 and 2015. Mr Regan, who took over the advice business in January last year, agreed that it was only common sense and “basic ethics and morality” not to charge people for something AMP knew it was not going to provide.

However, AMP did exactly that to almost 29,000 customers. Many of them were thrown into limbo after their financial adviser sold their client list — either to AMP or another adviser — or after their adviser was sacked by AMP.

The customers who were ripped off have so far been paid or promised more than $7 million in compensation, but AMP and ASIC are still investigating the issue, which breaches the company’s licence to provide financial services.

AMP first reported the problem to ASIC in 2009, but by 2011 it had again reared its head. Executives wanted to report it to ASIC, but backed down after financial planning head Michael Guggenheimer said he “would like to challenge the notion of this being a breach”.

The issue resurfaced in 2013, when AMP solicitor Tom Galletta told the company it would either have to provide the ongoing services customers had paid for or be “upfront” with them and tell them they would not be getting them.

Mr Regan agreed with Mr Hodge that “being upfront with the client wasn’t a plan that was taken up by AMP”.

AMP reported the breach to ASIC in May 2015, after publicity about ANZ perpetrating a similar scam. However, in its report it told the regulator a raft of falsehoods, including that none of the customers affected had paid for periodic reviews of their position, when in fact they had.

AMP also told ASIC that the fees had been charged because processes had “failed in some ­instances”. Put to him that the processes did not fail and it was ­instead “a deliberate decision made by AMP to retain fees on some of these clients”, Mr Regan said that it was “both”.

He agreed that AMP’s claim to ASIC that the issue had first been identified a month earlier was “completely false”.

AMP continued to mislead the regulator last year in both letters and a presentation at a meeting, he said.

Mr Regan was also forced to backpedal on an “unreserved” apology in his witness statement after Mr Hodge pointed out that it conflicted with AMP’s submission to the commission, which talked only of “possible” misconduct. He was unable to say whether his predecessor, Rob Caprioli, knew that charging the fees was a deliberate business decision. “I can’t speak for Mr Caprioli,” he said.