Tag: AMP

AMP Financial Planning Ceases MDA Services

AMP Financial Planning Pty Ltd (AMPFP) ceased providing managed discretionary account (MDA) services on 10 December 2019 following the imposition of tailored licence conditions by ASIC.

In March 2019, following a surveillance of AMPFP’s MDA services and advice business, ASIC granted AMPFP’s application to vary its Australian financial services (AFS) licence to provide MDA services, subject to some tailored licence conditions (19-078MR). The tailored conditions formalised commitments made by AMPFP, in response to ASIC’s concerns, to improve monitoring and supervision of its discretionary investment services and related financial advice.

Under the tailored licence conditions, a Senior Executive of AMPFP was required to provide an acceptable attestation to ASIC by 30 September 2019 confirming that AMPFP had complied with and was complying with the tailored conditions. This was to ensure that all of the required improvements to monitoring and supervision practices had been implemented and were operating effectively.

AMPFP did not provide ASIC with an acceptable attestation in relation to its provision of MDA services. The attestation provided by AMPFP had exceptions and ASIC informed AMPFP that the attestation was not acceptable to it, and AMPFP ceased providing MDA services in accordance with its licence conditions.  

Background

MDAs create particular risks for retail clients because when a client enters into a contract with an MDA provider, they give the provider authority to make investment decisions on their behalf on an ongoing basis without seeking the client’s prior approval.

The risks increase if the person recommending the MDA service and making or influencing the investment decisions are the same because the clients may not be receiving impartial advice about the decision to enter into or remain in the MDA service. ASIC expects AFS licensees to consider the risks involved with the financial advice and investment activities of their representatives in their monitoring and supervision practices. 

Can AMP save financial advice?

From the excellent James Mitchell at InvestorDaily. The embattled wealth manager has outlined an ambitious strategy to deliver financial advice to more Australians at a time when its competitors are abandoning the sector completely.

When AMP announced its new advice strategy last month, including a significant reduction in practice values, the news was met with anger and frustration by a significant cohort of its advisers. 

But unlike its major bank competitors the group is not looking to sell off its advice arm; instead, it has set itself the challenging task of trying to service more customers.

“It’s about more advice to more people in more ways,” AMP group executive, advice, Alex Wade told Investor Daily. “We have to solve the problem of not enough advice for Australians.”

Research by Momentum Intelligence shows that 71 per cent of Australians who don’t have a financial adviser don’t actually know what one does. There is a fundamental lack of awareness among the population about the value of advice. The royal commission, which gained widespread media coverage, hasn’t helped groups like AMP or its 2,200-strong network of advisers. 

The company has announced plans to invest half a billion dollars in its advice channel, including the development of a digital offering, which Mr Wade says will aid human interactions rather than compete with them. 

“I think there is a very big market for face-to-face. I think that will grow given that competitors are leaving,” he said. 

“The trouble with face-to-face advice is it is becoming more expensive, given regulatory changes and compliance costs.

“The AMP strategy is that we are doubling down on all advice where the others are leaving. I think we need to focus on our face-to-face advisers having compliant, professional practices at a business level. We also need to solve the underlying problem with digital.”

Mr Wade sees the digital advice element effectively acting as an engagement tool for the mass market – customers that cannot afford to pay a financial adviser a hefty annual fee. Yet. 

“That will be supported by phones, people still want to speak to a person, but I think for the mass Australian, people who can’t afford face-to-face advice yet, we need to solve it with digital. That digital channel will then send people up the three tiers to phone or face-to-face. 

“I think it will help our advisers, both employed and aligned, because they will be able to use our digital service for some of those clients who can’t afford face-to-face advice. For example, the children of their clients,” he said. 

As fees for service replace commissions, the natural trend has been for advice practices to move up-market and begin servicing wealthier clients who can actually afford their fees. 

“This all creates a problem for those who can’t afford advice,” Mr Wade said. “We are trying to counter that. We have announced $500 million to invest in advice. A large part of that will be technology in practices, compliant in design, to make them as efficient as possible.”

No Australian company has been able to successfully deliver a digital advice offering that has been embraced by the mass market. Yet. But AMP believes it can do just that. 

The company’s brand has been badly bruised by a series of scandals in recent years. Its new advice strategy has triggered an ugly backlash from advisers that have already been given termination letters. But that’s only half of the story. 

The group recently raised $784 million from shareholders, much of which will be spent on its journey to bring a digital advice solution to market while continuing to develop its network of employed and aligned advisers. The company has been in the advice game a long time. Its new approach appears to be one that will use the power of digital channels to optimise face-to-face advice, rather than eradicate it.

AMP Says Property Price Boom Unlikely

AMP Capital chief economist Shane Oliver says the latest resurgence in property prices will be tempered by weak economic conditions and lending constraints. Via InvestorDaily.

There are plenty of positive indicators to suggest property prices will soon be booming again. The boost from the election result which removed the threats to negative gearing and the capital gains tax discount, RBA rate cuts, positive headlines around the relaxation of the 7 per cent mortgage rate serviceability test and tax cuts have helped provide a bounce in home buyer demand at a time of low listings. 

“This is clearly evident in a continuing rebound in auction clearance rates where August saw the best monthly average clearance rates in Sydney since March 2017 and in Melbourne it was the best month since August 2017,” Mr  Oliver said. 

While this has come on very low volumes, it’s usually the case that improved clearance rates lead a pick-up in volumes and this may already be starting to be seen with listings picking up in recent weeks and is likely to become more evident through the spring selling season.

Australian capital city dwelling prices rose 1 per cent in August, according to CoreLogic. After a 10.2 per cent decline over 22 months average prices have now had their second rise in a row and their strongest since April 2017. However, dwelling prices are still down 5.9 per cent from a year ago.

Sydney dwelling prices rose a strong 1.6 per cent, which is their third gain in a row and Melbourne prices rose 1.4 per cent, which is also their third gain in a row.

“Based on past relationships the current level of clearances points to annual house price growth rising to around 10 [per cent] to 15 per cent over the next 9 [months] to 12 months,” Mr Oliver said. However, he added that AMP Capital’s base case remains that house price gains will be far more constrained than this. 

“Compared to past recovery cycles household debt-to-income ratios are much higher, bank lending standards are much tighter such that a return to rapid growth in interest only and investor loans is most unlikely, the supply of units has surged with more to come and this has already pushed up Sydney’s rental vacancy rate well above normal levels and unemployment is likely to drift up as overall economic growth remains weak,” he explained. 

“So notwithstanding the bounce in Sydney and Melbourne prices seen in August we don’t see a return to boom time conditions and expect constrained gains through 2020.”

But the fact remains that the rapid rebound in Sydney and Melbourne property prices to annualised gains around 15 per cent in August has raised the risk that we may see much stronger gains, Mr Oliver said. 

Going forward, the chief economist is keeping an eye on three key indicators: the spring selling season, housing finance commitments and the jobless rate. 

“Much higher unemployment is something the RBA is keen to avoid – in fact it wants unemployment to fall to 4.5 per cent or below – so our view remains for further cash rate reductions in November and February next year taking the cash rate to 0.5 per cent.

An obvious issue though is whether the rebound in the Sydney and Melbourne property markets will present a problem for the RBA in terms of cutting interest rates further. 

“This will no doubt cause some consternation at the bank,” Mr Oliver said. “But as we saw over the 2011-17 period the RBA will do what it believes is right for the ‘average’ of Australia as opposed to one sector or a couple of cities,” he said. 

“However, it may have to return to tighter regulatory controls again if it needs to cool the Sydney and Melbourne property markets once more for financial stability reasons. 

“In other words, we don’t see the rebound in the Sydney and Melbourne property markets as a barrier to further monetary easing, but if it continues to gather pace then expect a tightening of the screws again from bank regulators.”

AMP Announced $2.3 billion Loss And $650 million Capital Raising

In the first half of 2019 AMP posted a $2.3 billion shareholder loss due to a non-cash impairment to write down goodwill in Australian wealth management and legacy issues.  Via InvestorDaily.

The wealth giant has announced a $650 million fully underwritten capital raising which will enable it to set out on its new three-year transformational business plan. 

The shareholder loss is a far cry from last year when the group posted a shareholder profit of $115 million but the wealth giant was still able to announce an underlying profit of the half year of $309 million.

However this profit was also a decline in the first half of 2018 where the underlying profit was $495 despite royal commission and client remediation costs and was short of initial forecasts of a $390 million underlying profit. 

The capital raising, together with the sale of AMP Life to Resolution Life for $3.0 billion, will form the financial backing for the ambitious program announced by chief executive Francesco De Ferrari. 

“The strategy we’re launching today repositions AMP for the future, there’s a strong need for what we offer across all of our spectrum. And we have the business model to capitalise on the significant industry disruption that’s occurring,” he said. 

The strategy includes plans to reinvent its wealth management business to “help clients realise their ambitions” and will shift focus to direct-to-client channels and digital solutions. 

The strategy will also integrate AMP Bank solutions with wealth management, grow AMP capital through differentiated capabilities and transform AMP culture to be client-led with effective management of financial and non-financial risk. 

It is estimated that this program will cost between $1.0 billion and $1.3 billion said Mr De Ferrari with an element of that to be delivered by cost savings. 

“To deliver the strategy, we are investing between one at $1.3 billion during the next three years, and of this investment, approximately a third will be spent on growth…a third of this to take cost out of our business. We’re going to spend the last third of this investment toward de-risking the business and addressing legacy issues,” he said. 

According to AMP’s release $350 million to $450 million will be spent on growth, the same amount realising cost improvement, including a delivery of $300 million in cost savings by 2022 and a $350 million to $450 million investment in tackling legacy issues. 

Mr De Ferrari said it was important that the balance sheet remains unquestionably strong and the capital raising would allow AMP to implement its strategy and continue growth. 

“The capital raising and the AMP Life sale will provide the funds to implement immediately our new transformational strategy, which creates a simpler, higher growth and higher return AMP that’s focused on clients and ensures that our balance sheet will be unquestionably strong,” he said. 

AMP also confirmed it was on track to complete its remediation program during 2021 with an initial estimate of $778 million including both aligned and salaried advisers. 

The amount provisioned as part of total estimate has increased by $16 million to $672 million reflection lost earnings and program costs with $60 million spent to date. 

AMP’s chief financial officer designate John Patrick Moorhead has confirmed he is leaving the role with James Georgeson, current deputy CFO being appointed to the role of acting CFO and will commence handover with retiring CFO Gordon Lefevre. 

Mr De Ferrari also saw his remuneration adjusted to $2.45 million to reflect the share price of the group preceding his start date and the face value of his buyout incentive has decreased to $7 million from $10 million. 

The board has also replace the recovery incentive with the new award to have a face value of $4.4 million, down from $6 million.

Superannuation class action filed against AMP

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.  

APRA Imposes Conditions on AMP Super

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

AMP class action filed

Maurice Blackburn Lawyers has filed the first class action against AMP, alleging that the bank eroded more than an estimated two million superannuation accounts with ‘unreasonable fees’, via InvestorDaily.

The action is seeking compensation for the bank’s super fund members. Maurice Blackburn has opened an online portal where members can sign up to claim fees dating back to 30 May 2013.

Material tendered during the royal commission conveyed that AMP’s super funds were charging uncompetitive administration fees, with high costs exceeding returns and causing investment losses in some cases.

Maurice Blackburn’s action has claimed that AMP trustees failed to monitor, compare, negotiate or seek reductions of hefty fees being pocketed by the group’s companies, despite their duty to act in the best interest of members.

 “It’s important that inquiries and regulators uncover mass wrongdoing of this nature, but that doesn’t give people back their hard-earned superannuation funds, which they need for their retirement,” Brooke Dellavedova, principal lawyer, Maurice Blackburn said.  

“We estimate that over two million accounts have been impacted by AMP’s alleged misconduct.

“This class action asserts that AMP trustees breached statutory and general law obligations, essentially paying itself handsome fees from members’ funds. The case we are running will hold AMP to account for that.”

AMP said the proceeding will be “vigorously defended” in a statement, noting that it had cut product fees in the last year.

“In 2018, we cut fees on our flagship MySuper products, benefiting approximately 600,000 existing customers as well as new customers, improving member outcomes. In 2019, we also cut fees to MyNorth,” AMP said.

“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.”

Litigation funder Harbour is funding the class action, which has been filed in the Federal Court in Melbourne.

“Importantly, the matter will proceed in a way that means no one has to dip into their own pockets to fund the litigation,” Ms Dellavedova said.

“AMP account holders can band together to recover compensation, in circumstances where most people would not bring a case on their own.

“If you have had a superannuation account with AMP at any time since 30 May 2013, then you can sign up for this action to recover some of your lost funds, including compound growth amounts you missed out on.”

Maurice Blackburn wins right to class action against AMP

The NSW Supreme Court has selected law firm Maurice Blackburn to be the one to take a shareholder class action against AMP following last year’s royal commission; via InvestorDaily. 

Five law firms, Maurice Blackburn, Slater & Gordon, Phi Finney McDonald and Shine Lawyers, all filed class action lawsuits against the financial services company seeking compensation on behalf of shareholders. 

The actions followed a drop in AMP’s share price after testimony at the royal commission last year, which was followed by the resignation of AMP’s then chief executive and chairwoman and the dismissal of its general counsel after criticism of his handling of a report by Clayton Utz. 

NSW Supreme Court Judge Julie Ward chose Maurice Blackburn, whose funding model under their “no win, no pay” promise she considered the best. 

“In the present case the combination of: absence of a separate funding commission; the incentive created by an uplift in fees only once a specified resolution sum is achieved; the comparable return based on standardised assumptions and the fact that no common fund order is being sought, seems to me to point in favour of the [Maurice Blackburn] funding model,” Judge Ward said. 

The case against AMP alleges AMP engaged in misleading and deceptive conduct and breached its Corporations Act obligations when it failed to disclose its practice of charging fees for no service and in its interactions with ASIC. 

An AMP spokesperson welcomed the decision to permit only one class action to proceed and said they would defend against the proceedings. 

“AMP will continue to vigorously defend the class action proceeding. AMP denies the allegation that it had information that was required to be disclosed to the market regarding ‘fees for no service’ and AMP’s interactions with ASIC (including in respect of the Clayton Utz report).”

AMP also noted that Maurice Blackburn had been ordered to pay millions in security for AMP’s legal costs. 

“The selected class action has been ordered to pay $5 million in security for AMP’s costs,” said AMP

A class action by Slater & Gordon will be consolidated into the Maurice Blackburn case but with the latter running the litigation alone. 

Maurice Blackburn’s national head of class actions Andrew Watson was pleased with the result and said he looked forward to getting on with the job. 

“We are pleased that the Court accepted that Maurice Blackburn’s funding model could help deliver the best returns to group members.  We look forward to getting on with the important job of obtaining a recovery for affected AMP shareholders.”

Class actions typically take a long time to reach a conclusion with the next date set for next week for a directions hearing, which is a largely procedural issue. 

Banking sector reputation takes ‘major hit’

The major banks have seen their reputations significantly downgraded in an annual perception survey, with AMP placing last out of 60 Australian companies.

The Reputation Institute’s Australia RepTrak 2019 list examined 60 of the top revenue making Australian firms, which saw all of the big four banks and AMP ranked within the bottom ten.

The list was based on a survey with around 10,000 respondents giving ratings across factors such as trust and respect to generate overall reputation, in addition to seven parameters: products/services, innovation, workplace, citizenship, governance, leadership and performance.

AMP scored the lowest out of any company across all seven dimensions, dropping by 18 rankings from 2018.

NAB was the next lowest bank, falling at 58th place and having fallen 15 rankings from the year before.

Commonwealth Bank of Australia remained at its spot of 57th, while Westpac fell nine places to 55th.

ANZ fared the best of the big four, coming in at 51st, having fallen 16 places.

“In the past 12 months we’ve seen many issues raised about corporate behaviour and consumer trust,” Oliver Freedman, vice president and market leader, Reputation Institute said.

“As a result, the reputations of our major banks and some financial services organisations have taken a major hit.”

Meanwhile, Bendigo and Adelaide Bank rose seven places to 11th, which Mr Freedman said was due to a strong performance in the individual measurements of citizenship and governance.

“This proves that you can be a bank and still have a strong reputation if you are focused on reputation drivers that resonate with customers and increase trust,” he added.

Macquarie on the other hand came in at 42nd, down five places, as Allianz fell seven places from the year before to 37th.

New addition to the list Rest Super ranked 21st,while the Reserve Bank of Australia placed 18th, having risen by eight places.

AustralianSuper was down eight places to 15th.

“The banking sector has a long road to recovery and could learn a lot from those with consistently strong rankings, like Qantas and Air New Zealand,” Mr Freedman said.