Heads roll at AMP Australia
[ROYAL COMMISSION] AMP says it apologises “unreservedly” and its chief executive will stand down immediately, after its misconduct was brought to light by Australia’s banking royal commission.
Friday, April 20th 2018, 10:21AM 
11 Comments
The commission found AMP had repeatedly misled ASIC over its practice of charging customers fees for services they did not receive.
Senior AMP figures, including board chair Catherine Brenner, requested changes to an "independent" report into the matter prepared by law firm Clayton Utz.
AMP said chief executive Craig Meller would step down and non-executive director Mike Wilkins, former chief executive of IAG, would take over while his replacement was found.
An immediate, comprehensive review of AMP’s regulatory reporting and governance processes will be undertaken. This work will be overseen by a retired judge or equivalent independent expert who will be appointed imminently.
A board committee has been established to review the issues related to the advice business raised in the commission’s inquiries.
General counsel Brian Salter has agreed to take leave while the review is undertaken.
AMP will be making a submission to the royal commission to respond to the issues raised. The submission will address the issue of the independence of the Clayton Utz report.
The board will withdraw resolution four from its Notice of Meeting to the 2018 Annual General Meeting, which relates to an equity grant for the chief executive.
Work is already under way to refund customers - $4.7 million in fees has been returned to date.
An external review to ensure all fee for no service business practices have ceased is now complete.
AMP is also conducting an independent investigation into employee conduct. Based on the review’s findings, the board will determine the employment and remuneration implications for any relevant individuals around the fee for no service matter.
It is carrying out a review and complete overhaul of governance, systems and processes in the advice business, an enterprise-wide cultural audit conducted by an external consultant and an enterprise-wide review of risk governance, controls and culture also conducted by an external consultant.
Brenner said: “AMP apologises unreservedly for the misconduct and failures in regulatory disclosures in our advice business. The Board is determined that we will meet these challenges head on, accelerating changes in both culture and performance at AMP.
“We have been driving much-needed change and improvement in our advice business, which has undergone significant leadership and governance renewal over the past year but we know we have much more to do to.”
Meller said: “I am honoured to have been the CEO of AMP. I am personally devastated by the issues which have been raised publicly this week, particularly by the impact they have had on our customers, employees, planners and shareholders. This is not the AMP I know and these are not the actions our customers should expect from the company.
“I do not condone them or the misleading statements made to ASIC. However, as they occurred during my tenure as CEO, I believe that stepping down as CEO is an appropriate measure to begin the work that needs to be done to restore public and regulatory trust in AMP.”
AMP in New Zealand has distanced itself from the debacle across the ditch.
"I know how disappointed we all are in response to the behaviour that is the subject of the Royal Commission in Australia," said general manager advice and sales Therese Singleton, in a note to advisers.
"In New Zealand, we operate within a different regulatory and governance framework, with different operating and distribution models. We continue to maintain an open and transparent relationship with New Zealand regulators – the FMA and RBNZ.
"We are deeply committed to upholding good conduct and our primary responsibility is to maintain the integrity of our business and operations in the best interests of our customers and the community more broadly. That is what together we continue to be focused on."
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Brent
AMP NZ has two non-Kiwisaver fund ranges open to investors; the Savings & Investment Portfolio Unit Trusts and the AMP Investment Trust.
In addition to the fund fees of between 0.6% (cash fund) to 2.7% p.a., investors in the AMP Investment Trust also pay "up to" 5% up front to invest. This up front fee is paid to the adviser.
Looking at the Quarterly Fund Updates, across the 31 funds available in these two fund ranges only 1 (ONE) fund has beaten its benchmark after fees over 1 and 5 years to 31 Dec 2017.
Similarly, of the 23 AMP managed Kiwisaver funds available, only one has beaten its market benchmark over the last year and 5 years to 31 Dec 2017.
On what basis can AMP advisers recommend those funds to their clients and still claim to be acting in the clients' best interests? I'm genuinely curious.
Also interesting to note that AMP NZ's General Counsel, who is also one of four members of its Investment Committee, is the former Head of Compliance at the FMA.
I can only imagine Mr Faafoi and the top dogs in the FMA are on the phone as we type asking for confirmation of numbers of NZ clients adversely affected
MPT Heretic I assume your last comment is a joke – I imagine that the FMA will be pretending that all is well here as to admit otherwise would be to draw attention to themselves and their lack of action locally a bit like “we have never had an escape from stalag 13”. Unfortunately I suspect that the Royal Commission probably won’t have any impact on NZ given the lack of momentum and appetite within the MBIE and the FMA but it makes for good fun that’s for sure.
https://www.bloomberg.com/news/articles/2018-04-21/rbnz-s-orr-says-new-zealand-bank-culture-better-than-australia
RBNZ's Orr Says New Zealand Bank Culture Better Than Australia
22 April 2018 11:57 a.m.
New Zealand’s banking sector doesn’t share the cultural problems that are coming to the surface at an inquiry into misconduct in Australia’s financial industry, Reserve Bank Governor Adrian Orr says.
“The true problem and challenge going on in Australia is cultural,” Orr said Sunday in an interview on Television New Zealand’s Q+A. New Zealand bank culture “is infinitely better than some of the activity you’ve seen in Australia,” he said.
Australia’s Royal Commission heard last week that a financial planning unit owned by Commonwealth Bank of Australia collected fees from the accounts of dead people and that a Westpac Banking Corp. adviser whose misconduct has cost the lender A$2.2 million ($1.7 million) in customer compensation was driven by a desire to increase his bonus.
Orr said the RBNZ, which is the nation’s banking regulator, is watching the progress of the inquiry because Australia’s four biggest banks together hold about 90 percent of deposits in the New Zealand financial system. He doesn’t see the need for a similar inquiry in New Zealand.
“Why search for a problem yet to be identified?” he said. “I don’t see any lack of confidence in banks in New Zealand.”
Orr said the RBNZ operates a regulatory regime designed to make banks more transparent by increased financial disclosure while also imposing requirements on boards and senior managers to justify their decisions.
“Boards attesting and signing off on issues comes down to the moral fiber of the institution,” he said. “Market discipline and self discipline are critical. That’s sunlight coming in, and hopefully disinfectant.”
When I looked at a couple of funds in the AMP Capital Investment Funds series they had beaten the benchmark.
For example the AMP Capital NZ Fixed Interest Fund has returned 4.24%pa after fees and before tax in the past 5 years versus 3.99% for the benchmark.
Other issue is also how big any underperformance is. All passive funds underperform their benchmark, but that does not make passive investments bad investments.
Re your comment on passive funds, that is of course correct. But AMP's Kiwisaver passive international equity fund charges 0.92% p.a., which must make it one the most expensive passive funds in the world. According to the latest Quarterly Fund Update, that fund has underperformed its benchmark by 1.38% over the last year.
On further analysis I think I can see the difference between the AMP Capital funds and the AMP NZ Investment Trust funds. It's the fees.
Here's a list of funds common to both ranges, together with their annual fees:
AMPCI AMPIT
NZ Shares 0.79% 2.06%*
Australian Shares 0.49% 2.06%*
NZ Cash 0.27% 0.64%
NZ Bonds 0.57% 0.87%
Global Bonds 0.84% 1.59%
Global Shares 1.22% 2.31%
Emerging Mkt Shares 1.70% 2.71%
Infrastructure 1.31% 2.24%
*AMPIT offers an Australasian fund rather than separate NZ/Aus funds.
I assume the AMP Capital (AMPCI) funds are marketed to non-AMP advisers while the AMP NZ (AMPIT) funds are for use by the AMP employed and\or affiliated advisors. Perhaps someone from AMP could let us know?
Let me ask this: can AMP employed/affiliated advisers recommend the AMP Capital funds to their clients? If they can, why is there any money at all invested in the AMPIT funds given they cost far more? If they can't, how does AMP justify charging up to 1.5% p.a. more to its AMP advised clients than it charges to non-AMP advised investors?
AMP say it's different in NZ and the issues raised in the Royal Commission don't apply here. Perhaps someone from AMP NZ could contact Good Returns and explain who the fund ranges above are marketed to, and what the justification is for the huge fee difference.
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The code working group is dominated by representatives from these same organisations that are being accused of criminal behaviour. Would be nice to see some assurances from them or their organisations as to why the same thing won't happen here in NZ. Unless it already has been happening......
The CEO of AMP may have been "personally devastated" by these issues but he clearly wasn't professionally concerned by the profitability targets he set for AMP and the priority he gave to shareholders interests (including himself) rather than clients.