Slater and Gordon has today filed a class action against AMP on behalf of over two million Australians, via InverstorDaily.
The
class action is the second to be filed by Slater and Gordon as part of
its Get Your Super Back campaign that kicked off following the Royal
Commission.
The first class action launched by Slater and Gordon as part of their Get Your Super Back campaign was against Colonial First State.
The
case alleges that through arrangements with related parties, trustees
AMP Super and NM Super paid too much to related AMP entities for
administration services.
The case also alleges that they failed to secure an appropriate return on cash-only investment options.
Senior
Associate Nathan Rapoport at Slater and Gordon said super members
trusted that AMP would act in their best interests but instead were
charged exorbitant fees.
“Both AMP Super and NM Super, as
trustees of the funds, should have taken steps to secure the best deal
for members on a commercial arms-length basis,” said Mr Rapoport.
Mr
Rapoport said that the Royal Commission head evidence of a group of AMP
cash option members who received negative returns due to un-competitive
interest rates and excessive fees and not even the trustee was aware of
it.
“These customers would have been better off keeping their retirement savings under their bed,” Mr Rapoport said.
An AMP spokesperson said that the group acknowledged the class action proceeds and would vigorously defend the proceedings.
“The
action relates to fees charged to members, and the low interest rate
received and fees charged on cash-only fund options. The proceedings
will be vigorously defended.
“AMP and the trustees of its
superannuation funds are firmly committed to acting in the best
interests of their superannuation members and acting in accordance with
legal and regulatory obligations. We encourage any customers who have
concerns to contact AMP directly or their financial adviser,” an AMP
spokesperson said.
This is the latest class action to hit AMP after Maurice Blackburn Lawyers also
filed a class action against AMP seeking compensation for shareholders
alleging it breached the Corporations Act for failed to disclose its
practice of charging fees for no service and for its interactions with
ASIC.
Slater and Gordon were one of the five law firms to compete for the shareholder class action but Maurice Blackburn eventually won the right to continue on the case due to its funding model.
Westpac says a former HSBC wealth management boss will lead its new Business division, the result of the bank’s restructure and merging of the wealth businesses.
Guilherme
(Guil) Lima has come to the role of business chief executive from HSBC
in Hong Kong, where he was group head of wealth management.
Prior to his last role, he also led the retail and wealth management businesses of HSBC for the Latin American region.
In March, Westpac restructured its business following the royal commission in an effort to simplify the company, merging its private wealth, platforms & investments and superannuation businesses into the new Business segment.
The bank revealed in its half year results that its wealth remediation and restructure was costing it $620 million.
Mr
Lima has 22 years’ experience in banking and consulting in Asia,
Europe, Latin America and the US and is a former McKinsey and Co
partner.
At McKinsey and Co’s financial services
practice, Mr Lima led a number of engagements across a variety of
commercial and retail banking businesses.
“His
background in leading strategic change on a global basis, as well as his
domain expertise in banking and wealth, will be particularly valuable
as we seek to grow the breadth of our customer relationships across the
new Business division,” Brian Hartzer, group chief executive, Westpac
said.
“I’d also like to thank Alastair Welsh,
general manager, commercial banking, for his contribution as acting
chief executive, business. Al is doing a great job managing the
transition and ensuring the division continues to run smoothly.”
Subject to regulatory and visa approvals, Mr Lima will commence in the role later in the year.
APRA says it has issued directions and additional licence conditions to AMP Superannuation Limited and N.M. Superannuation Proprietary Limited (collectively AMP Super).
APRA has imposed the directions and additional licence conditions to address a range of concerns regarding AMP Super’s compliance with the Superannuation Industry (Supervision) Act 1993 (SIS Act). The action arises from issues identified during APRA’s ongoing prudential supervision of AMP Super, along with matters that emerged during the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry.
The new directions and conditions are designed to deliver enhanced member outcomes by requiring AMP Super to make significant changes to its business practices. Areas identified for improvement include conflicts of interest management, governance and risk management practices, breach remediation processes, addressing poor risk culture and strengthening accountability mechanisms. The directions also require AMP Super to renew and strengthen its board.
Additionally, APRA requires AMP Super to engage an external expert to report on remediation and compliance with the new directions and conditions.
This is the second time APRA has used the broader directions power that was granted in April following the passage of the Treasury Laws Amendment (Improving Accountability and Member Outcomes in Superannuation Measures No 1) Bill 2019. It also demonstrates APRA’s commitment to embedding the “constructively tough” enforcement appetite outlined in April’s new Enforcement Approach
CBA has today entered into an agreement to sell Count Financial Limited to ASX-listed CountPlus Limited.
Commonwealth Bank of Australia (CBA) has today entered into an agreement to sell Count Financial Limited (Count Financial) to ASX-listed CountPlus Limited (CountPlus) for $2.5 million (the Transaction). CountPlus is a logical owner of Count Financial given its historical corporate relationship and equity holdings in 15 Count Financial member firms.
CBA will continue to support and manage customer remediation matters
arising from past issues at Count Financial, including after completion
of the Transaction. CBA will provide an indemnity to CountPlus of $200
million and all claims under the indemnity must be notified to CBA
within 4 years of completion. This indemnity amount represents a
potential contingent liability of $56 million in excess of the
previously disclosed customer remediation provisions that CBA has made
in relation to Count Financial of $144 million (which formed part of the
remediation provisions announced in the 3Q19 Trading Update). CBA has
already provided for the program costs associated with these remediation
activities.
The Transaction is subject to a CountPlus shareholder vote to be held
in August 2019 and completion is expected to occur in October 2019. The
Transaction is not expected to have a material impact on the Group’s
net profit after tax.
CBA currently owns a 35.9% shareholding in CountPlus and intends,
subject to market conditions, to sell its shareholding in an orderly
manner over time following completion of the Transaction.
From a financial perspective, the Transaction will result in CBA
exiting a business that, in FY19, is estimated to incur a post-tax loss
of approximately $13 million.
Implications for NewCo
Following completion of the Transaction, NewCo will comprise Colonial
First State, Financial Wisdom, Aussie Home Loans and CBA’s 16% stake in
Mortgage Choice. Consistent with the announcement in March 2019, CBA
remains committed to the exit of these businesses over time. The current
focus is on continuing to implement the recommendations from the Royal
Commission and ensuring CBA puts things right by its customers.
I discuss the markets with Tony Locantro from Alto Capital, and get his take on which sectors might be of interest at the moment.
Bitcoin gets his thumbs down!
Please note that I have no financial relationship with Tony, I was simply interested in his perspective, and that this does not constitute financial advice.
A damning new report recommending extensive reform in the financial sector has taken aim at fund managers that pay a sponsorship fee to have their product offered on wraps and platforms, via InvestorDaily.
In its 60-page report entitled Professionalising Financial Advice,
the CFA Institute and CFA Societies Australia detailed their concerns
over the practice where some platforms or adviser groups place ‘wraps’
around existing funds and then market their own ‘products’ to clients as
a way to access certain funds or investment managers.
“This
allows the adviser to charge higher fees than would apply if the client
was given direct access to the underlying investment product,” the
report noted.
While the royal commission final report did not cover platform fees in detail, Hayne’s interim report stated:
Licensees
may and often do include third party manufacturers of products on their
approved product lists (including the approved product lists maintained
by platforms) but, much more often than not, advisers recommend that
clients use products that are manufactured by entities associated with
the advice licensee with which the adviser works.
Related
to this practice is the issue of fund managers paying a ‘sponsorship
fee’ or ‘shelf space fee’ to have their products offered on platforms,
the CFA Institute said.
“This means that even if a firm claims to
be independent and use ‘open architecture’ (offering access to all
products), the best products are not necessarily those that are put in
front of a client seeking advice.”
In its comments on platforms,
the interim report of the Hayne royal commission noted that the charging
of platform fees evoked comparisons with “fees for no service” because
the default setting seemed too often to be “set and forget”.
“Charging
platform fees evoked comparison with inappropriate advice because, very
often, the platform that an adviser recommended the client use was a
platform provided by an entity associated with the licensee with which
the adviser was aligned or by which the adviser was employed and the
arrangements were allowed to stay in operation despite the platform not
remaining cost-competitive” said Mr Hayne in his interim report.
“Both
the practice of ‘set and forget’ and the ways in which fees for, and
services provided by, platforms could remain unaltered over time show
that customers using platform services exert little or no effective
competitive pressure on platform operators.”
The CFA Institute
argues that, just as when recommending investment products, financial
advisers should have the client’s best interest in mind when
recommending an investment platform.
“This is consistent with the
financial services regime which treats platforms as financial products
and hence best interest must be observed when one is recommended.”
The CFA Institute also warned about fund managers paying to have their products rated by rating agencies.
“The
conflict is obvious – an agency is being paid by a fund manager to rate
that manager’s fund offerings. [A] fund manager also may shop around to
find an agency that will provide them with a better rating. They then
pay this rating firm and advertise the resulting rating of their funds
in their marketing material,” the report said.
Moody’s says that inequality has been increasing in the U.S. for decades. This has been well-documented. However, new data from the Federal Reserve shed additional light on the distribution of wealth and how it has evolved over time. The Distributional Financial Accounts show levels and share of wealth across four segments of the wealth distribution: the top 1%, the next 9%, the rest of the top half, and the bottom half. This is done by sharing out household wealth as shown in the Financial Accounts using primarily the Survey of Consumer Finances, supplemented with other information in some instances.
The data clearly show the skewed distribution of wealth. The
most recent data, for the fourth quarter of last year, show that the wealthiest
1% of households held 30.9% of total household wealth, only marginally below
the record high of 31.7% a year earlier and well above the 1990 low of 22.5%.
By contrast, the bottom half of the wealth distribution holds only 1.2% of all
wealth, down from over 4% at points during the 1990s. However, it is better
than the period immediately after the Great Recession, when this group was in
debt in aggregate.
One clear feature of the data is that the distribution of wealth doesn’t change in a linear fashion. The share of wealth held by the richest 1% has declined at times, and in some cases sharply. For example, the share topped 28% at the start of 2000 before falling under 25% in late 2002. Similarly, the share fell from 29.4% in late 2007 to 26.5% in early 2009. Both declines corresponded with sharp declines in U.S. stock prices.
Ownership of stocks is heavily skewed toward the high end of
the income and wealth distribution. Hence, the stock market is a strong driver
of the share of wealth held by the richest households. The extent of the
correlation may be surprising.
More interesting, the correlation largely breaks down for
the next richest 9% of the population. Their share of wealth fell in the early
1990s, then rose steadily until the Great Recession before trending lower.
While there is some correlation with movements in stock prices, they are
clearly not the dominant driver they are for the richest households. This
emphasizes how skewed wealth related to equity prices is.
To drive home the point, the correlation between the share
of total wealth held by the richest 1% of households and the share of corporate
equities and mutual fund shares held by the richest households is an astounding
94%. At present, equities and fund shares account for nearly 40% of wealth for
this group of households. However, this share has grown dramatically over time.
In the early 1990s it was under 20%, and over the entire history of the series
it averages 30%.
This one component of wealth is the major driver of changes
in share for the wealthiest households. Their share of wealth excluding stocks
and mutual fund shares is about 4 percentage points lower on average, rises
less, and is much more stable. This may understate the impact of equity prices
on the wealth of these households, since equities are included in life
insurance reserves and pension entitlements and correlate with equity in
noncorporate businesses.
Other obvious candidates as drivers of changes in the wealth
distribution fail to achieve anything like the apparent impact of equity
markets. Despite making up a larger portion of household assets than corporate
equities and mutual funds, housing wealth is less of a driver of wealth shares.
Houses are more commonly owned, and, other than around the Great Recession,
movements in house price growth tend to be gradual. Even for the lower-wealth
households, where real estate would be their primary asset, there seems little
linkage between house price growth and those households’ share of total wealth.
Similarly, the link between unemployment and wealth shares is weak.
The differences in the makeup of household balance sheets at
different positions in the wealth distribution are also shown in the
distributional accounts data. This is one of the driving factors in the share
movements. Therefore, it should not be surprising that corporate equities and
mutual funds are most important for the richest households. They account for
over a third of assets for the wealthiest 1% of households, compared with about
a fifth for the next 9% of households, under 10% for the next 40% of
households, and under 4% of assets for the bottom half of the wealth
distribution. Equity in noncorporate business is similarly skewed heavily
toward wealthy households.
By contrast, real estate assets are the most important piece
of the balance sheet for the bottom half of the wealth distribution. For this
group, they account for about half of all assets. The share declines sharply as
wealth increases until it falls below 12% of assets for the richest 1% of
households.
Pension entitlements are an important component of the
balance sheet for households in the upper half of the wealth distribution,
excluding the very rich. They make up almost a third of assets for households
in the 50th-90th percentiles of the distribution and about 30% for households
in the top 10% excluding the top 1%. However, they make up less than 10% of
assets for the very wealthy and bottom half of the distribution. Most likely,
lower-wealth households don’t have pensions while pensions for the very wealthy
are swamped by other assets. Pension entitlements are important for future
spending but may be less important for current spending if they are not
well-understood.
Liabilities follow what is probably an expected pattern. Mortgages account for a little over two-thirds of total household liabilities. However, they account for only a bit more than half of debt for households in the bottom half of the distribution. Consumer credit accounts for about 40% of their debt, the highest for any of the segments and well above the average of about a quarter.
The mortgage share increases until the top 1% of the distribution. They have nearly 15% of their debt in the other loans and advances category, dramatically more than other segments. This category captures debt related to their businesses and investments. Hence, just as real estate is a smaller portion of assets for the richest households, so too is mortgage debt a smaller share of liabilities.
The stock market has shown itself to be an important driver
of the distributions of wealth. Current prospects are for the market to perform
poorly by historical standards over the next year or so.
Economic growth is expected to slow and valuations remain
high. Neither is favorable for the market.
The one silver lining in this is that weak stock market
performance tends to associate with a moderation in wealth inequality.
Following an ASIC investigation, Citigroup will refund over $3 million to 114 retail customers for losses arising out of structured product investments offered by Citigroup between 2013 and 2017. Citigroup will also write to over 1000 customers remaining in the products to provide them an opportunity to exit early without cost.
ASIC investigated Citigroup’s sale and provision of general advice to
customers for fixed coupon structured products, which are complex,
capital at risk products tied to the performance of reference shares.
ASIC was concerned that while Citigroup considered its financial
advisers to be providing general advice, elements of its practice may
have led some customers to believe that Citigroup was providing personal
advice.
Citigroup’s practices included its advisers asking customers about
their personal circumstances, such as their tolerance for risk, and
providing financial education about benefits and risks to customers who
had no previous experience of investing in structured products.
Financial advisers have higher obligations and disclosure requirements
when providing personal advice.
From 1 January 2018, as a result of ASIC’s investigation, Citigroup
ceased selling structured products to retails clients under a general
advice model.
Citigroup will shortly start contacting affected customers. The
remediation will be completed by 10 September 2019, will be
independently assured and Citigroup will report to ASIC once the process
is complete.
ASIC has released KordaMentha Forensic’s final report on CBA’s advice compensation program under its additional licence conditions.
CBA has offered approximately $9.3 million to customers whose advice has been reviewed as a result of the licence conditions imposed by ASIC in August 2014.
ASIC had imposed additional conditions on the Australian financial
services (AFS) licences of CBA’s Commonwealth Financial Planning Ltd and
Financial Wisdom Ltd with the consent of the licensees in August 2014,
and appointed KordaMentha Forensic as the independent expert to monitor
the licensees’ compliance with the additional licence conditions.
ASIC took this action because the licensees did not apply review and
remediation processes consistently to customers of 15 financial
advisers, disadvantaging some customers. The additional licence
conditions required that CBA offer compensation for inappropriate advice
that caused financial loss (where applicable) and offer affected
customers up to $5,000 to get independent advice from an accountant,
financial adviser or lawyer.
KordaMentha Forensic has produced five reports since the licence conditions took effect. In the first report, the Comparison Report, KordaMentha
Forensic identified inconsistencies in treatment of clients and
required the licensees to correct the inconsistencies for approximately
2,740 customers.
In the second report, the Identification Report,
KordaMentha Forensic found that the licensees had taken reasonable
steps in 2012 to identify which clients of the 15 advisers had to be
included in the compensation program.
KordaMentha Forensic also found that the licensees had taken
reasonable steps to identify other potentially high-risk advisers, but
that the licensees had not adequately reviewed advice given by 17 of
those advisers. To address this, KordaMentha Forensic prescribed the
scope of the additional reviews (of the 17 advisers) that the licensees
had to undertake.
KordaMentha then produced three additional reports describing the
licensees’ compliance with the conditions, the additional steps that the
licensees were required to take, and the compensation outcomes. Compliance Report Parts 1 & 2 assessed
the steps taken by the licensees to communicate with and compensate
(where applicable) customers of 15 former advisers for advice provided
between 2003 and 2012.
Compliance Report Part 3 described
the licensees’ review of the 17 potentially high-risk advisers and
KordaMentha Forensic’s conclusion that the licensees should apply the
compensation program to customers of five of those advisers.
In the final report, Compliance Report Part 4,
published today, KordaMentha Forensic covers the last of CBA’s advice
compensation program under the licence conditions. The report states
that CBA has offered a further $2.3 million to 232 clients of the five
advisers. This is in addition to:
$4.95 million (including interest) offered to customers of different
advisers under the licence conditions (reported in KordaMentha
Forensic’s Compliance Report Parts 1 & 2);
$1.9 million (including interest) offered to additional customers as
a result of CBA’s review outside the licence conditions. The need for
these reviews was identified during the licence conditions process.
This means that CBA has offered approximately $9.3 million to
customers whose advice has been reviewed as a result of the licence
conditions imposed by ASIC in August 2014.
Industry insiders have revealed why banks are distancing themselves from wealth management and how their actions will reshape the Australian financial services sector; via InvestorDaily.
There
are a number of reasons why the big four have decided, to varying
degrees, to put a ‘for sale’ sign on their wealth management
businesses.
Some major bank chief executives have run a ruler
over their advice businesses and seen poorly performing divisions that
just don’t provide enough margin for the group’s bottom line.
Others,
like Westpac CEO Brian Hartzer, have seen the “writing on the wall” and
the mountain of increasing compliance that must be scaled to make
advice operational, let alone turn a profit.
But it may also have
been a strategic play based on negative sentiment, bad press and the
misguided belief that commissioner Hayne would propose an end to
vertically integrated wealth models.
“What
it looks like the banks have done in most cases, or in some cases, is
they’ve picked up their vertically integrated business, which consist of
advice and other products, and have looked to distance themselves from
that by either demerging or selling the wealth business,” Lifespan
Financial Planning CEO Eugene Ardino said.
Speaking exclusively
on the Investor Daily Live webcast on Wednesday (3 April), the dealer
group boss said the banks aren’t actually dismantling their conflicted
businesses – they’re selling them as bundled, vertically integrated
models where product and distribution sit under the same roof.
“That’s
not dismantling vertical integration. That’s really them trying to
distance themselves from wealth management. Whether that now goes ahead
in some cases remains to be seen,” he said.
“Perhaps what could have happened is some sort of recommendation around how to limit vertical integration or how to control it.
“The
issue you have is when you take a business that’s focused on sales and
that business takes over as the dominant force in a company that also
provides advice, then sales wins. I think that’s natural. Perhaps if
they had started there, that could have led to some moderation of
vertical integration.”
The royal commission hearings, more than
anything, were a targeted attack on the sales culture of large financial
institutions, many of which repeatedly defended their models as
profit-making businesses, often beholden to shareholders.
“In
product businesses, their job is to sell. That’s fine. There’s nothing
wrong with that. But if you’re putting an adviser hat on, there needs to
be some separation. That’s an issue of culture,” Mr Ardino said.
I
haven’t seen some of the employment contracts of the advisers from some
of the groups that got into trouble, but I would venture a guess that a
lot of their KPIs talk about new business rather than retaining
business and servicing clients.”
Fellow panellist and Thomson
Reuters APAC bureau chief Nathan Lynch said that despite Hayne’s failure
to propose banning vertical integration in wealth management, the model
will ultimately be dismantled by market forces.
“Hayne points
out that a lot of the dismantling of the vertically integrated model
comes down to the fact that it’s just not profitable. You have an
environment where vertical integration will be dismantled to some extent
by competitive forces and by technology,” he said.
“Servicing
the vast majority of client is going to become very difficult. Most
businesses are starting to pivot to the high end. I think we need to
view technology in advice as a positive, as an enabler.”
