AMP CEO Francesco De Ferrari blasts class action litigation funders

AMP CEO Francesco De Ferrari says litigation funders are driving up the cost of financial advice.

AMP CEO Francesco De Ferrari. Picture: John Feder/The Australian.

AMP chief executive Francesco De Ferrari has blasted litigation funders for driving up the cost of financial advice in Australia and for failing to act in the best interests of clients, as he faced a grilling from a parliamentary committee reviewing conduct in the financial advice sector.

Appearing in front of the House of Representatives Standing Committee on Economics on Tuesday via video link, Mr De Ferrari also revealed that the wealth giant has so far paid out less than a third of the nearly $800m it has set aside to compensate customers wrongly charged for dodgy financial advice and fees for no service.

“Australia is the second most attractive class action litigation jurisdiction in the world. The returns for the litigator funding are 17 times the average returns on the S&P/ASX 200,” Mr De Ferrari told the committee.

“Litigation (funders) are taking a much bigger share of settlements and that creates an escalating cost of doing business in Australia. It’s reflected in higher professional indemnity insurance and it’s reflected in the fact that a number of the large global reinsurers today consider Australia as a very dangerous location to reinsure risk.

“Ultimately that will result in a higher cost of doing business which will result in job losses and higher costs being passed on to consumers.”

A report released earlier this month by the Menzies Research Centre showed that, on average, class action settlement proceeds paid out to clients shrank from 59 per cent in 2016 to just 39 per cent in 2019.

“This industry is becoming increasingly fragmented. An adviser running a small boutique, he will have to get professional indemnity insurance to be able to run his business effectively … that’s a significant risk today if we don’t get litigation funding under control,” Mr De Ferrari warned.

Treasurer Josh Frydenberg last month announced that litigation funders would from August this year be subjected to greater regulatory scrutiny through the requirement to hold an Australian Financial Services Licence.

Mr De Ferrari said he welcomed the move because it would force funders to act in the best interest of plaintiffs, which he said wasn’t true of the current set-up.

AMP is currently facing two class actions over the scandals undercovered at the Hayne royal commission: one concerning fees-for-no-service, launched by Maurice Blackburn and funded by UK litigation funder Harbour, and a second for shareholders who suffered losses as a result of the wealth manager’s misconduct, which Maurice Blackburn has taken on a “no win, no fee” basis.

Under questioning from Labor MP Daniel Mulino, Mr De Ferrari also admitted to the committee that as at the end of May, AMP had remediated 62,000 clients $241m of the $778m it estimates it owes as part of its program to compensate for a decade of poor financial advice. The payments first started to flow out of the wealth manager in 2018 and it expects to complete the program by the end of 2021.

AMP has “one of the best remediation programs in the country”, he said, with more than 500 staff brought on to assist with the ongoing review.

Mr De Ferrari took on the CEO role at AMP in late 2018 and has embarked on a three-year transformation plan aimed at improving compliance and putting the focus back on the customer.

Appearing after Mr De Ferrari, IOOF chief executive Renato Mota told the committee the wealth manager this month began refunding customers as part of its $235m compensation program but flagged it would take another 18 months before all funds are paid out. After establishing its remediation program 18 months ago, the wealth manager has so far paid just $2.5m to customers it wrongfully charged for poor advice.

“There is more to go and if I reflect on the current case load, we think we’ll get through those in the next 12-18 months … It’s really important that we deal with this accurately and get this money to people as quickly as possible, but it is very complex,” Mr Mota said.

IOOF has been criticised for dragging its feet on repaying client funds after giving dodgy advice and charging fees without providing a service. “The royal commission and its findings were a very important wake-up call to make sure that we hold ourselves to higher standards,” Mr Mota said, revealing that the wealth manager terminated 40 advisers in the last year for providing poor financial advice.