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BFCSA: Whistleblower reveals more unethical behaviour inside AMP

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Whistleblower reveals more unethical behaviour inside AMP

Australian Financial ReviewMay 10 2018 11:00 PM



AMP's record-high negative 61 per cent vote against its remuneration report is the least of the wealth manager's worries when weighed against the prospect of the company's core advice business disintegrating.

The securities regulator could put the last nail in the AMP advice coffin with its planned ban on grandfathered commissions, which form the majority of revenue for AMP's financial planners.

It is clear from the treasure trove of documents uncovered by the Hayne royal commission that AMP's advice business is riven with immoral and unethical conduct and needs to be disposed of.

It is extraordinary that this conduct has been going on for years right under the eyes of managers who have been unwilling to put a stop to it.

Chanticleer discovered how bad the situation has been during an interview with an AMP whistleblower this week. The person, who worked in the AMP corporate super division between 2014 and 2016, was disturbed to find staff openly talking about techniques that could be used to get around the laws designed to end commissions and separate personal and general advice.

Business development managers attending a training session to inform staff of the boundaries imposed by the Future of Financial Advice (FoFA) legislation openly discussed ways of getting around the law.

When the employee brought it to the attention of her manager he said: "You need to be careful." Nothing eventuated from her complaint.

The whistleblower said AMP's corporate super business was used as a source of warm leads by advisers wanting to gain new clients. In many cases moving out of a corporate super plan was not smart because it involved paying higher fees.

AMP said in a statement: "AMP fully supports FoFA and does not stand for behaviour or practices that contravene or undermine the regulations. We encourage any staff member – including former staff – to come to us with any concerns they have."

Advice 'cornerstone of business'

Of course, this new open and transparent attitude contrasts with the revelations about management's involvement in the fees for no advice scandal exposed at the Hayne inquiry. This incident triggered the company's repeated lies to the Australian Securities and Investments Commission.

Documents published by the Hayne inquiry show that as recently as March this year ASIC was complaining to former AMP legal counsel Brian Salter about the company's unwillingness to co-operate with the regulator including its excessive use of legal and professional privilege to block access to information.

Long-suffering shareholders of AMP who took comfort from comments made at the annual meeting in Melbourne by executive chairman Mike Wilkins about the advice business should think again. "Advice remains a cornerstone of our business," he said.

But the advice business is heading for serious trouble now that ASIC has told the Hayne inquiry it wants to outlaw all grandfathered commission payments, which comprise the majority of revenue paid to AMP's financial planners.

ASIC is concerned that "almost five years after the implementation of the FoFA reforms, grandfathered commissions continue to form a significant proportion of licensee/adviser remuneration and grandfathered commissions operate to incentivise advisers to keep clients in legacy products with a continuing commission structure, even where there may be better products available to meet the client's needs".

The fact that AMP has loads of portfolios of customers paying grandfathered trail commissions that can be sold like parcels of sausages is appalling. But for some reason this has not caused ethical alarm bells to sound inside AMP.

AMP's unwillingness to confront the grandfathered commissions issue is obvious. It would mean approaching customers. That would be like poking a sleeping bear in a cave.

Brewing financial scandal

There are undoubtedly thousands of AMP customers who have never received any advice but have been charged for it for years. They would get a rude wake-up call.

The remediation costs of this brewing financial scandal are impossible to calculate. It's no wonder respected Citi analyst Nigel Pittaway told clients "AMP's issues are so wide-ranging and the implications potentially so significant that value is very hard to determine".

Sadly, many of the customers trapped in grandfathered commission packages have only ever been shaken out of their ignorance after a portfolio of customers was sold to a new buyer. Many of the new buyers of these portfolios discovered the best way to maximise the money to be made out of these people was to sell them new insurance policies.

It is notable that ASIC never liked the grandfathering of commissions because of the ability to create misaligned incentives.

"When grandfathering of commissions was included as an element in the FoFA reforms, ASIC's position was that those arrangements should not continue in perpetuity (as do the current arrangements), ought not to extend to new clients or new arrangements (which occurs in some circumstances under the current provisions) and ought to treat all products and platforms equally in order to ensure competitive neutrality (which is not the case under the current provisions)," ASIC said.

Whoever is appointed the new chief executive of AMP will have to start with a clean sweep of the management ranks. It is unbelievable that almost 12 months after the fee-for-no-service issue was notified to the board AMP is still trying to discover who was responsible and take action.

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