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ANZ boss tells royal commission bank was too focused on revenue – live ANZ boss tells royal commission bank was too focused on revenue – live
(35 minutes later)
Shares in AMP have tanked this morning after the acting boss Mike Wilkins endured a fairly torrid time on the witness stand yesterday and today.
They are selling for $2.335, a fall of 3.91%.
AMP, once a byword for the financial sector’s reliability and profit-making capacity, has seen its shares collapse this year as the royal commission has exposed misconduct and poor management. The conpany lost $1.5bn in value in one day’s trading in October after admitting customers were pulling their super from its accounts.
He told the hearing that the cost of the wealth management firm’s “fix and rebuild” program to repair its reputation had blown out to $770m and involved 150 staff working full-time.
Elliott’s performance so far has been reasonable.
It stands in severe contrast to Ken Henry’s, the chairman of NAB, who spent yesterday slouched in his chair, deigning to answer Orr’s questions when he thought they were worth responding to.
It will be fascinating to see what Hayne says about Henry in the final report.
Orr: “So where does customer remediation sit now on your list of priorities for the application of your resources?”
Elliott: “I don’t have a list of priorities that numbers them one through 10 or something. I have a group that are all important. Remediation is there. If we were to speak to our team who run the Australia business, of which this refers to, they would tell you - and they have - and it’s documented - that remediation is their number one priority as a team. If I look at our board - and I believe it’s documented in the minutes - have encouraged or ... demanded that remediation deserves to be a top priority of the organisation.”
She wants to know why ANZ has previously described customer remediation as a “distraction”.
Asic uncovered an internal ANZ document in which a staff member said the bank put less focus on customer remediation – it was seen as a distraction, at the expense of earning revenue, and therefore not always given the highest priority.
Elliott said that was not an official view from ANZ. It was a mid-level executive who jotted down some thoughts ahead of ANZ’s attempt to recalibrate its approach to remediation this year.
Elliott: “It’s not an official analysis, it’s a person’s perspective. It’s a valid perspective but I think that’s what it is and I think it is important to note.”
Orr: “Can I start by asking whether you agree with that perspective?
Elliott: “Well, I think there are elements with that. I take this person at their word. There will have been an element of that, most certainly. Whether it was widespread, whether it was the norm at ANZ, I don’t believe so.”
Orr takes Elliott to the final finding in the ASIC report.
Asic found it took the major financial groups an average of 251 days to make the first payment to customers affected by a significant breach after the end of the investigation.
It took ANZ an average of 198 days [woo hoo it’s not the worst for once].
Orr flays him anyway, and rightly.
Orr: “Now, again, is that too long, Mr Elliott?
Elliott: “Yes. Absolutely.”
Orr: “And why has it taken ANZ so long to remediate customers?”
Elliott: “My investigation into this, and discussion with our teams has been - and this was a mistake on our part so I accept this was wrong – we had a culture of before we started remediating any customers we wanted to have total knowledge of the full extent of who exactly should be remediated and so there was a desire for exactness and completeness before we even commenced remediation.
“That was a cultural norm, if you will, within the company. It’s wrong. It’s flawed.
“And so what we have done now, with our remediation team, is we’ve adopted new principles and a new way of thinking about that which essentially says once we have sufficient knowledge where we can determine remediation even for a small number of customers, a cohort, we should start. So we don’t need to wait until we have 100% knowledge. We should start and do it in tranches and get going. We’ve already adopted that approach. It’s already having an impact in terms of our timelines. And it’s now something that we monitor.”
Orr takes Elliott to a second finding in ASIC’s report that it took the major financial groups an average of 150 days after commencing an investigation to lodge a breach report.Orr takes Elliott to a second finding in ASIC’s report that it took the major financial groups an average of 150 days after commencing an investigation to lodge a breach report.
There is a legal obligation under section 912D of the Corporations Act to report significant breaches within 10 days of becoming aware of the breach.There is a legal obligation under section 912D of the Corporations Act to report significant breaches within 10 days of becoming aware of the breach.
Orr: “ANZ was an outlier on this front. Do you agree, Mr Elliott?”Orr: “ANZ was an outlier on this front. Do you agree, Mr Elliott?”
Elliott: “Yes, I do.”Elliott: “Yes, I do.”
The other major banks took an average of 104 days for CBA, 139 days for NAB, and 165 days for Westpac between commencing the investigation and lodging a breach report.The other major banks took an average of 104 days for CBA, 139 days for NAB, and 165 days for Westpac between commencing the investigation and lodging a breach report.
It took ANZ 213 days.It took ANZ 213 days.
Orr: “Would you still today be unable to look beyond seven years to see how many customers had been affected?”Orr: “Would you still today be unable to look beyond seven years to see how many customers had been affected?”
Elliott: “Not in all cases.”Elliott: “Not in all cases.”
Elliott tries to offer an explanation, saying ANZ’s business was extremely complicated with different lines of reporting and oversight.Elliott tries to offer an explanation, saying ANZ’s business was extremely complicated with different lines of reporting and oversight.
He says changes have been made, but he can’t say how long it will now take to identify a breach and report it to Asic. He would hope it could be significantly lower than 1,500 days.He says changes have been made, but he can’t say how long it will now take to identify a breach and report it to Asic. He would hope it could be significantly lower than 1,500 days.
Orr reads a case study from Asic’s report that involved ANZ.Orr reads a case study from Asic’s report that involved ANZ.
Asic found ANZ could not advise when one particular significant breach started, despite having conducted investigations for almost two years and identifying historical concerns with fee disclosure on some types of credit and debit cards.Asic found ANZ could not advise when one particular significant breach started, despite having conducted investigations for almost two years and identifying historical concerns with fee disclosure on some types of credit and debit cards.
The availability of ANZ’s data meant it could only identify instances that had occurred in the previous seven years (which totalled around $7m in overcharged fees for customers). As a result, the remediation was limited to the identified $7m over charged. Further investigation of unavailable data may have revealed a greater impact.The availability of ANZ’s data meant it could only identify instances that had occurred in the previous seven years (which totalled around $7m in overcharged fees for customers). As a result, the remediation was limited to the identified $7m over charged. Further investigation of unavailable data may have revealed a greater impact.
Orr: “Do you have any observations about how it could come to the point where an investigation had been conducted for almost two years which had found that customers had been overcharged around $7m but ANZ still couldn’t identify when the breach had started or whether this was the entirety of the amount that had been overcharged?”Orr: “Do you have any observations about how it could come to the point where an investigation had been conducted for almost two years which had found that customers had been overcharged around $7m but ANZ still couldn’t identify when the breach had started or whether this was the entirety of the amount that had been overcharged?”
Elliott: “The difficulty here was going back further into history where the data was unavailable. Therefore, it was impossible for us to try to reconstruct that data. We accept that the concerns or the fee issues may have actually predated the seven years. It’s really a technical inability to go and discover that.”Elliott: “The difficulty here was going back further into history where the data was unavailable. Therefore, it was impossible for us to try to reconstruct that data. We accept that the concerns or the fee issues may have actually predated the seven years. It’s really a technical inability to go and discover that.”
It takes ANZ over four years to identify an incident that’s later determined to be a significant breachIt takes ANZ over four years to identify an incident that’s later determined to be a significant breach
Orr takes Elliott to an ASIC report on the breach reporting practices of Australia’s major banks.Orr takes Elliott to an ASIC report on the breach reporting practices of Australia’s major banks.
It found Australian financial services licensees took, on average, 1,517 days to identify an incident that was later determined to be a significant breach.It found Australian financial services licensees took, on average, 1,517 days to identify an incident that was later determined to be a significant breach.
Orr: “And that number of days, 1,517 days, also happened to be the average time it took ANZ to do that. Is that right?”Orr: “And that number of days, 1,517 days, also happened to be the average time it took ANZ to do that. Is that right?”
Elliott: “I believe so, yes.Elliott: “I believe so, yes.
Orr: “So, on average, it has taken ANZ more than four years to identify an incident that’s later determined to be a significant breach?Orr: “So, on average, it has taken ANZ more than four years to identify an incident that’s later determined to be a significant breach?
Elliott: “Yes.Elliott: “Yes.
Orr: “Now, can I ask you what your observations are about that finding, more than four years to identify an incident?-Orr: “Now, can I ask you what your observations are about that finding, more than four years to identify an incident?-
Elliott: “Well, I mean, it’s clearly unacceptable and it’s not right.”Elliott: “Well, I mean, it’s clearly unacceptable and it’s not right.”
Shayne Elliott offers a mea culpa:Shayne Elliott offers a mea culpa:
Obviously the issues that we were talking about were over a period of time, in particular the [last] 10-year period, but I think, in fairness, drift back further than that in terms of the causes.Obviously the issues that we were talking about were over a period of time, in particular the [last] 10-year period, but I think, in fairness, drift back further than that in terms of the causes.
[That mirrors the argument from NAB’s chief executive, Andrew Thorburn, who has conceded the industry started shifting away from customers 20 years ago].[That mirrors the argument from NAB’s chief executive, Andrew Thorburn, who has conceded the industry started shifting away from customers 20 years ago].
There was a recognition that at times we had – we always have to get the balance right between the needs of various stakeholders – that we had become far too focused on revenue, in particular, we don’t use the word sales but certainly revenue, as a definition of good behaviour, or good outcomes of excellence, if you will.There was a recognition that at times we had – we always have to get the balance right between the needs of various stakeholders – that we had become far too focused on revenue, in particular, we don’t use the word sales but certainly revenue, as a definition of good behaviour, or good outcomes of excellence, if you will.
People who drove good revenue outcomes were seen to be doing a good job, and we paid less attention to how they achieved those outcomes.People who drove good revenue outcomes were seen to be doing a good job, and we paid less attention to how they achieved those outcomes.
ANZ has already acknowledged to the royal commission that it has engaged in a range of misconduct and conduct that fell below community standards and expectations.ANZ has already acknowledged to the royal commission that it has engaged in a range of misconduct and conduct that fell below community standards and expectations.
In submissions to the commission the bank has blamed a culture that has become overly focused on revenue and sales.In submissions to the commission the bank has blamed a culture that has become overly focused on revenue and sales.
Elliott has been CEO and executive director of ANZ since 1 January 2016.Elliott has been CEO and executive director of ANZ since 1 January 2016.
Since last year he has also been the chairman of the Australian Banking Association.Since last year he has also been the chairman of the Australian Banking Association.
He joined ANZ in June 2009 and has held a variety of roles within the bank, including as global managing director of its institutional business unit, and as chief financial officer.He joined ANZ in June 2009 and has held a variety of roles within the bank, including as global managing director of its institutional business unit, and as chief financial officer.
Before joining ANZ he held senior positions in two other financial institutions –Citigroup and a large investment bank in the Middle East.Before joining ANZ he held senior positions in two other financial institutions –Citigroup and a large investment bank in the Middle East.
Shayne Elliott, the ANZ chief executive, is now in the witness box.Shayne Elliott, the ANZ chief executive, is now in the witness box.
Senior counsel assisting the royal commission Rowena Orr QC is leading the questions.Senior counsel assisting the royal commission Rowena Orr QC is leading the questions.
Wilkins is very defensive about AMP’s vertically-integrated model.Wilkins is very defensive about AMP’s vertically-integrated model.
The commissioner, Kenneth Hayne, isn’t buying it.The commissioner, Kenneth Hayne, isn’t buying it.
Hodge wants to know if an AMP customer can have any confidence that they will receive good advice from an AMP-aligned financial adviser, and whether they will receive compensation if the advice turns out to be terrible.Hodge wants to know if an AMP customer can have any confidence that they will receive good advice from an AMP-aligned financial adviser, and whether they will receive compensation if the advice turns out to be terrible.
He notes that yesterday AMP agreed it had set aside $460m to pay customers who had been hit by AMP’s fee-for-no-service scandal.He notes that yesterday AMP agreed it had set aside $460m to pay customers who had been hit by AMP’s fee-for-no-service scandal.
Wilkins tries to reassure customers that they can still trust AMP.Wilkins tries to reassure customers that they can still trust AMP.
At any rate, that marks the end of Wilkins’ evidence.At any rate, that marks the end of Wilkins’ evidence.
Shayne Elliott, the chief executive of ANZ, is up next.Shayne Elliott, the chief executive of ANZ, is up next.
In recent years, the banks repeatedly claimed that their financial advisers were acting in their customers’ best interests by selling them products that just happened to originate from the very banks for which the advisers worked.In recent years, the banks repeatedly claimed that their financial advisers were acting in their customers’ best interests by selling them products that just happened to originate from the very banks for which the advisers worked.
And why wouldn’t an AMP-aligned financial adviser advise a customer to buy AMP’s products? AMP’s products are superior to its competitor’s products!And why wouldn’t an AMP-aligned financial adviser advise a customer to buy AMP’s products? AMP’s products are superior to its competitor’s products!
Well, the financial advice industry has proved so profitable for everybody involved – the banks, the advisers – that the number of advisers has exploded.Well, the financial advice industry has proved so profitable for everybody involved – the banks, the advisers – that the number of advisers has exploded.
The royal commission was told in April that since the global financial crisis the number of advisers has grown from roughly 18,000 in late 2009 to now 25,386 – an increase of 41%.The royal commission was told in April that since the global financial crisis the number of advisers has grown from roughly 18,000 in late 2009 to now 25,386 – an increase of 41%.
Just 8,704 of all financial advisers – or 35% – have completed a degree at bachelor level or above.Just 8,704 of all financial advisers – or 35% – have completed a degree at bachelor level or above.
Hodge lays out AMP’s vertically integrated model.Hodge lays out AMP’s vertically integrated model.
He says AMP customers are channelled through various distribution networks, with the main distribution channel being “advice” – via either direct or aligned financial advisers.He says AMP customers are channelled through various distribution networks, with the main distribution channel being “advice” – via either direct or aligned financial advisers.
AMP has data on what percentage of their customers choose AMP’s own products.AMP has data on what percentage of their customers choose AMP’s own products.
The percentage is high for customers who use platforms and then it goes down through funds, risk and bank.The percentage is high for customers who use platforms and then it goes down through funds, risk and bank.
Hodge has a document showing there’s a $370m margin share. He wants to know what that means.Hodge has a document showing there’s a $370m margin share. He wants to know what that means.
Wilkins: “That is a payment that comes from the manufacturing units to the advice unit recognising the access to all of those forms advice in terms of the product flows that potentially come to AMP.”Wilkins: “That is a payment that comes from the manufacturing units to the advice unit recognising the access to all of those forms advice in terms of the product flows that potentially come to AMP.”
Hodge: “Tell me if I’m right about this. Is it the case that $330m in commissions is paid by the products over to advice?”Hodge: “Tell me if I’m right about this. Is it the case that $330m in commissions is paid by the products over to advice?”
Wilkins: “Yes.Wilkins: “Yes.
Hodge: “And $370m is the amount of the margin that these AMP products make from the customers that is then shared back to the advisers?”Hodge: “And $370m is the amount of the margin that these AMP products make from the customers that is then shared back to the advisers?”
Wilkins: “Yes.”Wilkins: “Yes.”
A huge flow of funds comes from customers who’ve been sent by AMP-aligned advisers. The funds are sent to AMP Capital, and the majority of those funds are distributed out to other fund managers and AMP products.A huge flow of funds comes from customers who’ve been sent by AMP-aligned advisers. The funds are sent to AMP Capital, and the majority of those funds are distributed out to other fund managers and AMP products.
Howard-McDonald warned in her memorandum:Howard-McDonald warned in her memorandum:
As a business, we talk often about the value of a vertically integrated business but in practice my feeling is that we have little organisational understanding of what this means in terms of customer and other stakeholder expectations.As a business, we talk often about the value of a vertically integrated business but in practice my feeling is that we have little organisational understanding of what this means in terms of customer and other stakeholder expectations.
Further, on a day-to-day basis we operate as broadly four separate business lines who happen to share the same name and spend a lot of time doing business with each other, sometimes to the detriment of customer outcomes.Further, on a day-to-day basis we operate as broadly four separate business lines who happen to share the same name and spend a lot of time doing business with each other, sometimes to the detriment of customer outcomes.
Hodge asks Mike Wilkins if he shares the view that AMP’s understanding of vertical integration is problematic.Hodge asks Mike Wilkins if he shares the view that AMP’s understanding of vertical integration is problematic.
Wilkins: “No, I don’t.”Wilkins: “No, I don’t.”
Hodge then asks: “I think it fair to say you haven’t given up on vertical integration?”Hodge then asks: “I think it fair to say you haven’t given up on vertical integration?”
Wilkins: “No.”Wilkins: “No.”
Hodge: “And for AMP, at least as it stands, vertical integration is pretty fundamental to the business?”Hodge: “And for AMP, at least as it stands, vertical integration is pretty fundamental to the business?”
Wilkins: “We believe in vertical integration. We think it’s an appropriate structure that does have benefits for the consumer as well.”Wilkins: “We believe in vertical integration. We think it’s an appropriate structure that does have benefits for the consumer as well.”
The senior counsel assisting the royal commission Michael Hodge QC asks Mike Wilkins about a document Wilkins was handed by AMP’s customer advocate, Melanie Howard-McDonald.The senior counsel assisting the royal commission Michael Hodge QC asks Mike Wilkins about a document Wilkins was handed by AMP’s customer advocate, Melanie Howard-McDonald.
Howard-McDonald’s role was to deal with customer complaints on a day-to-day basis.Howard-McDonald’s role was to deal with customer complaints on a day-to-day basis.
She wrote the document at Wilkins’ request. He’d wanted to know her thoughts about a prudential inquiry into Commonwealth Bank. He’d asked the top 100 leaders of AMP to do that same thing but not everybody responded to his request.She wrote the document at Wilkins’ request. He’d wanted to know her thoughts about a prudential inquiry into Commonwealth Bank. He’d asked the top 100 leaders of AMP to do that same thing but not everybody responded to his request.
Howard-McDonald’s views were passed to AMP’s board, which used them to develop AMP’s response to the CBA inquiry.Howard-McDonald’s views were passed to AMP’s board, which used them to develop AMP’s response to the CBA inquiry.
She saw serious problems with AMP’s vertically integrated model.She saw serious problems with AMP’s vertically integrated model.
Wilkins says he disagreed with her views about vertical integration.Wilkins says he disagreed with her views about vertical integration.
Reminder:Reminder:
The “vertical integration” business model has received serious criticism from the royal commission this year.The “vertical integration” business model has received serious criticism from the royal commission this year.
The banks discovered long ago it was highly profitable to sell their customers financial advice and financial products. If they could charge customers for financial advice, and if that “advice” consisted of purchasing their financial products, then they would enjoy a profitable feedback loop. The business model was called “vertical integration”.The banks discovered long ago it was highly profitable to sell their customers financial advice and financial products. If they could charge customers for financial advice, and if that “advice” consisted of purchasing their financial products, then they would enjoy a profitable feedback loop. The business model was called “vertical integration”.
This year the corporate regulator published a report scrutinising the practice, called “Vertically integrated institutions and conflicts of interest”.This year the corporate regulator published a report scrutinising the practice, called “Vertically integrated institutions and conflicts of interest”.
It looked at the quality of financial advice being offered by the two largest financial advice licensees owned or controlled by the Commonwealth Bank, ANZ Banking Group, Westpac, National Australia Bank and AMP.It looked at the quality of financial advice being offered by the two largest financial advice licensees owned or controlled by the Commonwealth Bank, ANZ Banking Group, Westpac, National Australia Bank and AMP.
It found their financial advisers had failed to comply with the best interests of customers in 75% of advice files reviewed.It found their financial advisers had failed to comply with the best interests of customers in 75% of advice files reviewed.
It concluded there was an “inherent” conflict of interest arising from banks providing personal financial advice to retail clients while also selling them financial products.It concluded there was an “inherent” conflict of interest arising from banks providing personal financial advice to retail clients while also selling them financial products.
Good morning, everyone.Good morning, everyone.
Thanks for joining Guardian Australia’s blog of the banking royal commission.Thanks for joining Guardian Australia’s blog of the banking royal commission.
We’re back today with Mike Wilkins, the acting chief executive of AMP. After Wilkins is finished we’ll hear from ANZ’s chief executive, Shayne Elliott.We’re back today with Mike Wilkins, the acting chief executive of AMP. After Wilkins is finished we’ll hear from ANZ’s chief executive, Shayne Elliott.
AMP had another terrible day in the witness box yesterday but it’s share price was hardly affected. I guess it’s all relative. AMP’s shareholders are used to worse news.AMP had another terrible day in the witness box yesterday but it’s share price was hardly affected. I guess it’s all relative. AMP’s shareholders are used to worse news.