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Banking royal commission: AMP adviser with conflict of interest a 'grave concern' – live Banking royal commission: AMP admits adviser with conflict of interest a 'grave concern' – live
(35 minutes later)
Orr has taken Britt through the findings of a Pricewaterhouse Coopers report on AMP’s auditing procedures for advisers. It warned in three out of 12 cases it checked advisers had been scored too highly and grades such as A, B and C can be “very subjective”.
Britt expressed discomfort at the results, and said AMP is now working with Asic to implement a new auditing process (Audit 2.0) to be rolled out by mid-year.
Asked if there are “significant deficiencies” in its auditing processes, Britt concedes “it’s an imperfect system” but does not necessarily accept the failings are “significant”.
Britt has now been dismissed.
The third AMP adviser resigned to work for another financial services company in September 2014 after a decision to terminate his authority. There was some internal debate about what to say if the new company asked AMP for a reference for him, but no request came.
Asked if AMP now has a policy of proactively warning companies who take on suspect advisers, Britt replies she is “not aware we reach out proactively and provide that information”. But that’s because the industry is more vigilant and incoming licensees “would always undertake reference checking”, she said.
Nine months later in July 2015, in response to an Asic notice, AMP identified the third adviser as an “SCC” (Serious Compliance Concern - not Silver Cooking Certificate, which was my first guess).
Britt accepted that there was a failure of due diligence when the third adviser was hired. She says this would no longer occur.
AMP wrote to the third adviser’s clients, but Britt acknowledges the letters did not explicitly offer compensation and no remediation has been offered to these clients to date.
We’re still going on the third AMP adviser, but I’m going to hand you over to my colleague Paul Karp who will bring you home this afternoon.We’re still going on the third AMP adviser, but I’m going to hand you over to my colleague Paul Karp who will bring you home this afternoon.
Thanks for following along.Thanks for following along.
Still on the third AMP adviser. The commission is hearing that a year after he was hired his employment was reviewed. It was found that he had no qualifications to give advice on self-managed super funds. However none of his files were reviewed for a year.Still on the third AMP adviser. The commission is hearing that a year after he was hired his employment was reviewed. It was found that he had no qualifications to give advice on self-managed super funds. However none of his files were reviewed for a year.
When a review was done it revealed that in his cases there were 27 high risk cases, and that the financial planner had failed to disclose his interests in a property buying company.When a review was done it revealed that in his cases there were 27 high risk cases, and that the financial planner had failed to disclose his interests in a property buying company.
A subsequent audit of his case resulted in an E rating, the lowest possible.A subsequent audit of his case resulted in an E rating, the lowest possible.
Orr says there were a “raft of problems” with his conduct, including that he failed to disclose his 60% ownership in a property business.Orr says there were a “raft of problems” with his conduct, including that he failed to disclose his 60% ownership in a property business.
Britt says his conflict of interest was a matter of “grave concern”.Britt says his conflict of interest was a matter of “grave concern”.
Right, we’re onto the third AMP adviser that we’re looking at today.Right, we’re onto the third AMP adviser that we’re looking at today.
The adviser joined an associated provider in 2013 after previously working for Australian Financial Services Limited. That company was previously subject to an Asic investigation.The adviser joined an associated provider in 2013 after previously working for Australian Financial Services Limited. That company was previously subject to an Asic investigation.
The adviser had been subject to more than one complaint in 2009 and 2010 while working for AFSL. He also did not have a diploma of financial advice, and had previously put clients into investments which were subsequently frozen. He’d been subject to audits, but told recruiters that he wasn’t aware of what his audit rating was.The adviser had been subject to more than one complaint in 2009 and 2010 while working for AFSL. He also did not have a diploma of financial advice, and had previously put clients into investments which were subsequently frozen. He’d been subject to audits, but told recruiters that he wasn’t aware of what his audit rating was.
But the financial adviser brought with him clients with $30 million in funds under management and turnover of $650,000.But the financial adviser brought with him clients with $30 million in funds under management and turnover of $650,000.
Orr asks Britt why AMP still allowed him to work as a financial adviser.Orr asks Britt why AMP still allowed him to work as a financial adviser.
Britt concedes it was a “deficient process”.Britt concedes it was a “deficient process”.
Outside Monday’s hearings there has been quite a roll-call of political actors trying to deal themselves into the public flogging of the banks - Tony Abbott, Bill Shorten, Pauline Hanson and now the Australian Council of Trade Unions.Outside Monday’s hearings there has been quite a roll-call of political actors trying to deal themselves into the public flogging of the banks - Tony Abbott, Bill Shorten, Pauline Hanson and now the Australian Council of Trade Unions.
ACTU secretary Sally McManus has written to the chief executives of industry super funds, requesting that they review and reconsider their relationship with banks in accordance with their environmental, social and governance policies.ACTU secretary Sally McManus has written to the chief executives of industry super funds, requesting that they review and reconsider their relationship with banks in accordance with their environmental, social and governance policies.
McManus wrote:McManus wrote:
“Like me, I am sure you have been appalled by the revelations about the outrageous and illegal behaviour of our nation’s biggest banks and financial services providers exposed by the Hayne Royal Commission this week and in recent media reports.“Like me, I am sure you have been appalled by the revelations about the outrageous and illegal behaviour of our nation’s biggest banks and financial services providers exposed by the Hayne Royal Commission this week and in recent media reports.
“There is no question that this behaviour is entirely inconsistent with the expectations and interests of the union movement.”“There is no question that this behaviour is entirely inconsistent with the expectations and interests of the union movement.”
If super funds continue their “direct and indirect” relationships with banks they should do so only after “unequivocally clarifying the expectations and interest of your funds’ members”.If super funds continue their “direct and indirect” relationships with banks they should do so only after “unequivocally clarifying the expectations and interest of your funds’ members”.
Unions have a high degree of institutional influence over industry super funds through their boards and influence directing their members’ retirement funds.Unions have a high degree of institutional influence over industry super funds through their boards and influence directing their members’ retirement funds.
It’s quite early in the piece for the ACTU to have fired this warning shot - one hopes the industry funds themselves have clean hands and meet these standards when they appear.It’s quite early in the piece for the ACTU to have fired this warning shot - one hopes the industry funds themselves have clean hands and meet these standards when they appear.
A review of some of this planner’s files found eight other cases of similar conduct, but as many as 100 of her clients may need to be remediated.A review of some of this planner’s files found eight other cases of similar conduct, but as many as 100 of her clients may need to be remediated.
However no clients have been contacted and the cases have not yet been remediated.However no clients have been contacted and the cases have not yet been remediated.
Orr asks Britt whether AMP has provided enough resources for its remediation program.Orr asks Britt whether AMP has provided enough resources for its remediation program.
“Going forward, yes, but historically we [have] underestimated the task ahead of us,” Britt says.“Going forward, yes, but historically we [have] underestimated the task ahead of us,” Britt says.
“As an organisation we have to own that. There has been a huge effort to restructure and reset the program going forward so that it is adequately resourced.”“As an organisation we have to own that. There has been a huge effort to restructure and reset the program going forward so that it is adequately resourced.”
We’re hearing about a second AMP financial planner who provided inappropriate advice to a customer.We’re hearing about a second AMP financial planner who provided inappropriate advice to a customer.
The planner gave advice to a young couple – a tradesman and stay-at-home mum with a combined income of $73,000 – with a one-year-old daughter, who sought advice about insurance.The planner gave advice to a young couple – a tradesman and stay-at-home mum with a combined income of $73,000 – with a one-year-old daughter, who sought advice about insurance.
The planner recommended the couple replace their existing insurance policy with one from AMP.The planner recommended the couple replace their existing insurance policy with one from AMP.
They were told the new insurance would be about $1000 cheaper per year. But the planner’s advice was wrong. The new AMP premiums were about $1000 more per year. The premiums were being withdrawn from the couple’s super.They were told the new insurance would be about $1000 cheaper per year. But the planner’s advice was wrong. The new AMP premiums were about $1000 more per year. The premiums were being withdrawn from the couple’s super.
Orr asks whether the advice was inappropriate.Orr asks whether the advice was inappropriate.
“Potentially, yes.”“Potentially, yes.”
“There are deficiencies in the advice document, absolutely. They were picked up on audit.”“There are deficiencies in the advice document, absolutely. They were picked up on audit.”
The planner received three consecutive ‘D’ ratings in audits, which Britt concedes was a concerning “pattern of conduct”.The planner received three consecutive ‘D’ ratings in audits, which Britt concedes was a concerning “pattern of conduct”.
But Britt says the clients have not been remediated or even contacted.But Britt says the clients have not been remediated or even contacted.
“Ideally yes we would be compensating these clients now,” she says.“Ideally yes we would be compensating these clients now,” she says.
Hi there. We’re back from lunch. Sarah Britt, the head of advice compliance at AMP, is still being questioned about the bank’s financial advice practices.Hi there. We’re back from lunch. Sarah Britt, the head of advice compliance at AMP, is still being questioned about the bank’s financial advice practices.
The husband and wife client of Mr E have still not received compensation, or even been contacted by AMP.The husband and wife client of Mr E have still not received compensation, or even been contacted by AMP.
Britt says that’s because the case has been moved into their “remediation” review. AMP has remediated clients of 14 advisers so far.Britt says that’s because the case has been moved into their “remediation” review. AMP has remediated clients of 14 advisers so far.
“There are a number of advisers in that remediation program [but] unfortunately that hasn’t happened yet,” she says.“There are a number of advisers in that remediation program [but] unfortunately that hasn’t happened yet,” she says.
Orr suggests that the clients don’t know that they have received bad advice?Orr suggests that the clients don’t know that they have received bad advice?
Britt responds yes, “and it’s not acceptable”.Britt responds yes, “and it’s not acceptable”.
Still on Mr E.Still on Mr E.
After the audit, he was issued with a show cause notice, but AMP did not terminate his employment despite a recommendation to do so.After the audit, he was issued with a show cause notice, but AMP did not terminate his employment despite a recommendation to do so.
“There were discussions around whether or not there was additional training and controls such that this adviser could be kept on,” Britt tells the commission.“There were discussions around whether or not there was additional training and controls such that this adviser could be kept on,” Britt tells the commission.
“He was relatively new and relatively junior.”“He was relatively new and relatively junior.”
Orr asks Britt whether she supported keeping him on.Orr asks Britt whether she supported keeping him on.
“There was certainly some discomfort around that decision,” she responds.“There was certainly some discomfort around that decision,” she responds.
A subsequent sampling review of 20 of Mr E’s files found that eight included inappropriate advice.A subsequent sampling review of 20 of Mr E’s files found that eight included inappropriate advice.
AMP was also told that Mr E had also cancelled the husband’s insurance resulting in him being uninsured for three months.AMP was also told that Mr E had also cancelled the husband’s insurance resulting in him being uninsured for three months.
By August 2017, Mr E’s employer also decided to terminate him, writing in an email that he represents a “heightened risk to our business beyond our or his ability to manage”.By August 2017, Mr E’s employer also decided to terminate him, writing in an email that he represents a “heightened risk to our business beyond our or his ability to manage”.
Britt says Mr E was reported to the regulator, but AMP decided it was not a licensee breach.Britt says Mr E was reported to the regulator, but AMP decided it was not a licensee breach.
Rowena Orr, the senior counsel assisting, is asking Sarah Britt to consider the case of three former AMP financial planners.Rowena Orr, the senior counsel assisting, is asking Sarah Britt to consider the case of three former AMP financial planners.
The first is being referred to as “Mr E”. He gave improper advice to a couple in November 2016.The first is being referred to as “Mr E”. He gave improper advice to a couple in November 2016.
The husband and wife told Mr E they wanted to make sure their funds were performing appropriately “to accumulate wealth in the long term”. The husband also wanted adequate insurance.The husband and wife told Mr E they wanted to make sure their funds were performing appropriately “to accumulate wealth in the long term”. The husband also wanted adequate insurance.
Mr E’s advice to the couple was for them both to roll their super accounts to My North Super, an AMP product. That’s despite one of the husband’s previous super providers deducting an exit fee of $16,000 which resulted in him sacrificing close to 25% of the balance of the fund.Mr E’s advice to the couple was for them both to roll their super accounts to My North Super, an AMP product. That’s despite one of the husband’s previous super providers deducting an exit fee of $16,000 which resulted in him sacrificing close to 25% of the balance of the fund.
A later audit also found the wife was going to be charged a higher ongoing fee.A later audit also found the wife was going to be charged a higher ongoing fee.
Britt agreed that the advice was not in the couple’s best interests.Britt agreed that the advice was not in the couple’s best interests.
“Unless there were significant benefits which would outweigh the exit fee, then yes, correct,” Britt said.“Unless there were significant benefits which would outweigh the exit fee, then yes, correct,” Britt said.
“Based on documents I’ve seen ... I couldn’t identify what those benefits were and I think similarly the auditor ... was concerned if there were such benefits it hadn’t been demonstrated what they were.”“Based on documents I’ve seen ... I couldn’t identify what those benefits were and I think similarly the auditor ... was concerned if there were such benefits it hadn’t been demonstrated what they were.”
Britt agreed there was no evidence of benefits that could outweigh the exit fee. Mr E’s advice was that the new fund would “earn more” but there was no comparison.Britt agreed there was no evidence of benefits that could outweigh the exit fee. Mr E’s advice was that the new fund would “earn more” but there was no comparison.
Orr has shown that Mr E was audited on more than one occasion. In March 2017 he was given an “E” rating, meaning he had failed to meet minimum standards, the worst available standard. There were eight high-weighted issues and 11 medium rated issues, including other instances where he inappropriately advised that clients move their super to My North.Orr has shown that Mr E was audited on more than one occasion. In March 2017 he was given an “E” rating, meaning he had failed to meet minimum standards, the worst available standard. There were eight high-weighted issues and 11 medium rated issues, including other instances where he inappropriately advised that clients move their super to My North.
Sarah Britt, the head of advice and compliance at AMP, has now been sworn in.Sarah Britt, the head of advice and compliance at AMP, has now been sworn in.
Remember last week AMP became the first casualty of the commission when chief executive Craig Meller stepped down following revelations the company had repeatedly lied to the regulator.Remember last week AMP became the first casualty of the commission when chief executive Craig Meller stepped down following revelations the company had repeatedly lied to the regulator.
Orr is finishing up with Rixon now, but before she does she tries to get to the heart of the continuing risk of non-compliant financial advice being provided to customers.Orr is finishing up with Rixon now, but before she does she tries to get to the heart of the continuing risk of non-compliant financial advice being provided to customers.
“Doesn’t the continued need for ANZ to accept [that its] high risk customers [are] provided with non-compliant advice in a systemic way leading to breaches of your financial services license indicate that for many years the systems and process at ANZ have been inadequate?”“Doesn’t the continued need for ANZ to accept [that its] high risk customers [are] provided with non-compliant advice in a systemic way leading to breaches of your financial services license indicate that for many years the systems and process at ANZ have been inadequate?”
“No, I don’t accept that our systems and processes have been inadequate in the whole, I do accept there have been certain controls that have had deficiencies in them over the past periods you are looking at,” Rixon responds.“No, I don’t accept that our systems and processes have been inadequate in the whole, I do accept there have been certain controls that have had deficiencies in them over the past periods you are looking at,” Rixon responds.
Rixon is asked what an acceptable risk profile would be. “I would like there to be no customer provided with non-compliant advice and I would certainly like it to be very, very low,” she says.Rixon is asked what an acceptable risk profile would be. “I would like there to be no customer provided with non-compliant advice and I would certainly like it to be very, very low,” she says.
But she concedes that it’s impossible to reduce the risk to zero.But she concedes that it’s impossible to reduce the risk to zero.
The ANZ meeting, mentioned earlier, that assessed the level of risk as a result of non-compliant advice identified by the business risk and compliance committee, wasn’t the only one.The ANZ meeting, mentioned earlier, that assessed the level of risk as a result of non-compliant advice identified by the business risk and compliance committee, wasn’t the only one.
At a later meeting in June 2016, the committee – which is chaired by Rixon – noted that “this risk acceptance has been extended four times”.At a later meeting in June 2016, the committee – which is chaired by Rixon – noted that “this risk acceptance has been extended four times”.
This was apparently due to a technological delay.This was apparently due to a technological delay.
Orr suggests ANZ were repeatedly accepting the possibility of “systemic instances of advice that may lead to reportable breaches”.Orr suggests ANZ were repeatedly accepting the possibility of “systemic instances of advice that may lead to reportable breaches”.
“It’s very regrettable,” Rixon responds.“It’s very regrettable,” Rixon responds.
Where this royal commission ends up is anyone’s guess, but in the short term it’s already proving to be politically uncomfortable for the Coalition.Where this royal commission ends up is anyone’s guess, but in the short term it’s already proving to be politically uncomfortable for the Coalition.
Exhibit one: attempts to pass its blue chip corporate tax cut.Exhibit one: attempts to pass its blue chip corporate tax cut.
The government’s doing its best to keep the two things separate, but a press release put out by the One Nation Senator Pauline Hanson just now demonstrates how difficult that’s going to be.The government’s doing its best to keep the two things separate, but a press release put out by the One Nation Senator Pauline Hanson just now demonstrates how difficult that’s going to be.
One Nation previously backed the cut, and as recently as Saturday were telling Fairfax Media that the two things should be treated separately.One Nation previously backed the cut, and as recently as Saturday were telling Fairfax Media that the two things should be treated separately.
But she seems to be changing her tune somewhat. Hanson says that corporate tax cuts to the sector “should be quarantined so that victims are guaranteed to receive compensation”.But she seems to be changing her tune somewhat. Hanson says that corporate tax cuts to the sector “should be quarantined so that victims are guaranteed to receive compensation”.
“While One Nation have shown its support for reducing company tax to 25%, banks should not receive the benefit of these cuts until customers who have suffered are compensated for the wrongdoing they’ve experienced.”“While One Nation have shown its support for reducing company tax to 25%, banks should not receive the benefit of these cuts until customers who have suffered are compensated for the wrongdoing they’ve experienced.”
“I’m not talking about a carve out. I’m suggesting the government quarantine the 5% saving so that customers who have been wronged can be repaid and compensated in full.” Under the government’s enterprise tax plan, banks would not expect to receive corporate tax cuts until 2026-27, with Senator Hanson suggesting the sector would need to settle with victims early to avoid losing any potential tax cuts.“I’m not talking about a carve out. I’m suggesting the government quarantine the 5% saving so that customers who have been wronged can be repaid and compensated in full.” Under the government’s enterprise tax plan, banks would not expect to receive corporate tax cuts until 2026-27, with Senator Hanson suggesting the sector would need to settle with victims early to avoid losing any potential tax cuts.
Orr is now questioning Rixon about a report of an ANZ business risk and compliance committee meeting.Orr is now questioning Rixon about a report of an ANZ business risk and compliance committee meeting.
A “risk treatment plan” presented to that meeting found the risk of losses associated with inappropriate advice to be “moderate”.A “risk treatment plan” presented to that meeting found the risk of losses associated with inappropriate advice to be “moderate”.
Losses of $10 million might be expected, the plan found, along with $10 million in remediation.Losses of $10 million might be expected, the plan found, along with $10 million in remediation.
We’re drilling down now into the performance of ANZ’s financial advice arm.We’re drilling down now into the performance of ANZ’s financial advice arm.
Orr has taken Rixon some internal financial adviser audits from prior to 2015, both from their internal advisers and the affiliated advisers like Millennium 3.Orr has taken Rixon some internal financial adviser audits from prior to 2015, both from their internal advisers and the affiliated advisers like Millennium 3.
We’re told that the audits show that 5% – or 1 in 20 – of advice given to clients failed to meet the requirement that the advice be in the best interest of the client. And 10% of ANZ’s financial planning advice did not discuss the advantages or disadvantages of the product to the client. For M3, it was more than 15%.We’re told that the audits show that 5% – or 1 in 20 – of advice given to clients failed to meet the requirement that the advice be in the best interest of the client. And 10% of ANZ’s financial planning advice did not discuss the advantages or disadvantages of the product to the client. For M3, it was more than 15%.
But that’s not all.But that’s not all.
The audit found that in 7% of cases ANZ financial planners failed to do proper research, and that during the time of the audits, 11% of the M3 advisors were rated as “high risk advisers”.The audit found that in 7% of cases ANZ financial planners failed to do proper research, and that during the time of the audits, 11% of the M3 advisors were rated as “high risk advisers”.
“The audits are meant to be representative of what’s occurring across the business?” Orr asks.“The audits are meant to be representative of what’s occurring across the business?” Orr asks.
“Yes, that’s true,” Rixon responds.“Yes, that’s true,” Rixon responds.
Rixon concedes the results are “very regrettable”.Rixon concedes the results are “very regrettable”.
Orr presses: “At least in this period, prior to 2015, ANZ systems and processes weren’t adequate to ensure customers were given appropriate advice?”Orr presses: “At least in this period, prior to 2015, ANZ systems and processes weren’t adequate to ensure customers were given appropriate advice?”
“Yes, in the sense that many had deficiencies,” Rixon responds.“Yes, in the sense that many had deficiencies,” Rixon responds.