AMP has admitted to the financial services royal commission it deceived the corporate regulator ASIC over fees charged to thousands of customers who were not provided with the financial advice they were being charged for.
Key points:
- Thousands of banking customers to be refunded after being charged for financial advice they never received
- Number of financial advisers has soared from 18,000 in 2009 to more than 25,000
- Only 35 per cent of advisers have informed ASIC they have a university degree
- Fintechs are emerging as consumers look for alternatives to meet their lending needs
Such fees are the first case study being examined by the commission in its latest round of hearings, which are focusing on financial advice.
More than 300,000 customers across the big four banks and AMP are being refunded a combined $216 million after being charged for financial advice they never received.
More than half that compensation bill is being footed by the Commonwealth Bank for more than 30,000 customers who did not receive an annual financial check-up that they paid for.
However, AMP was first in the stand to explain how "orphaned" customers it inherited from its financial planner network were charged fees for three months even though AMP was not, and could not, provide them advice.
Senior counsel assisting the commission, Michael Hodge QC, asked AMP's Anthony Regan whether he was surprised that charging clients fees without providing services to them is illegal when he was informed about the practice.
"No, it's not a surprise that it's not lawful," Mr Regan admitted.
"It's just obvious isn't it that you can't charge somebody for 90 days for providing services that you're not going to provide. Do you agree with that?" Mr Hodge pressed.
"That's correct."
Mr Hodge then grilled Mr Regan on apologies contained within his statement, asking whether that was an admission from AMP it had breached the law.
After lengthy pauses and an intervention from AMP's counsel, Mr Hodge again pressed, "Do you know what it is you're apologising for?"
"I'm uncertain," said Mr Regan.
However, the AMP executive did admit the company had repeatedly misled ASIC, covering up the deliberate nature of its 90-day fee policy, where clients were charged for that period even thought there were not getting any advice.
"The processes didn't fail did they Mr Regan? There was a deliberate decision made by AMP to retain fees on some of these clients?" asked Mr Hodge.
"As I recall, I think it's both," Mr Regan responded.
"In some cases there was a failure of process, but in other cases it was a deliberate decision by AMP?" probed the senior counsel assisting.
"That's correct," Mr Regan conceded.
"And AMP didn't tell ASIC that they had made this deliberate decision?"
"That's correct."
That was just one example of more than half a dozen seperate instances where AMP gave false or misleading information to the corporate regulator.
Financial planning explosion
The financial services royal commission has been told that there has been a rapid increase in the number of financial advisers, but less than half of them have told the regulator they hold a relevant university degree.
Senior counsel assisting the commission, Rowena Orr QC, told the hearing that the number of financial advisers has increased 41 per cent from around 18,000 in November 2009 to more than 25,000 currently.
The first witness in the current fortnight of hearings is ASIC deputy chairman Peter Kell.
He said the financial planning sector emerged mainly out of commission-based life insurance sales before gaining momentum with the introduction of compulsory superannuation.
"[It's] a relatively new industry," Mr Kell said.
"It emerged in a significant way in the 1980s and thereafter."
Mr Kell also noted that the sector lacked a single dominant professional association, such as exists in fields such as medicine, which may explain the lack of consistent professional standards across financial planners.
The regulator sees this as a key factor in some of the behaviour that falls below community expectations and is not in the client's best interest, such as the fee-for-no-service scandal.
"The firms in question prioritised the revenue from their advice businesses over the provision of services to the clients," Mr Kell told the commission.
"We found in all the instances that the systems that underpinned the ability to collect revenue were better developed than the systems that ensured that the client received the advice service."
Commissioner Kenneth Hayne made a general characterisation of the three main types of misconduct identified in financial advice.
"Selling what you can't deliver, selling what you won't deliver and selling what you don't deliver," he said.
Mr Kell said most of the cases being looked at in the current hearings fell into the third grouping.
"In this instance, the don't deliver would characterise the majority of the cases that we're talking about, with some of the can't deliver perhaps being mixed in there as well," he responded.
Ms Orr told the commission only 35 per cent of financial advisors had informed ASIC that they had a university degree of bachelor level or above.
There are new education requirements coming in on January 1, 2019, which will be monitored by a Commonwealth standard setting body.
New financial advisers must have a relevant university level degree and sit an exam.
Existing advisers will have two years from 2019 to pass the exam and must reach a standard equivalent to a relevant university degree by January 1, 2024.
A new code of ethics will come into force on January 1, 2020.
Consumers looking for lending alternatives
Alongside the issues being discussed during the royal commission, one US online lender said financial technology companies or "fintechs" were emerging as consumers who are disillusioned with big banks turned to online lenders and smaller finance companies to meet their needs.
Noah Breslow, global chief executive of OnDeck, the largest online lender to small businesses in the US, told the ABC News Channel that trust was an important issue for the financial industry.
"Trust is so important in financial services, and as a new player in the market we worked very hard over 11 years in the US to establish trust."
Mr Breslow is promoting self regulation as the key to bolstering confidence in the fintech industry but conceded greater regulation will be imposed by governments.
"I think we have no illusions. Fintechs want to be a mainstream part of the lending process for small business and consumers here in Australia and really around the world so eventually there will be some form of regulation but we do think that self regulation is an important first step showing that the industry is willing to work in a constructive way with government, with other constituents to bring responsible products to the community," Mr Breslow said.
Mr Breslow is visiting Australia for a conference on alternative finance.
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