Outrage is growing across party and ideological lines following extraordinary revelations that financial services giant AMP was routinely charging customers fees for no service, and misleading the regulator about it.
The potentially criminal behaviour was revealed during a royal commission hearing on Tuesday. By Wednesday, the behaviour had been universally condemned.
Speaking on Wednesday morning, Treasurer Scott Morrison called AMP’s conduct “deeply disturbing”.
“They [AMP] have said that they basically charged people for services they didn’t provide and they have admitted to statements that were misleading to ASIC and to their own customers, and this is deeply distressing.
“This type of behaviour can attract penalties which include jail time. That’s how serious these things are.”
Corporate watchdog ASIC confirmed that AMP had been the subject of an ongoing investigation.
“ASIC is and has been investigating AMP’s conduct in relation to ‘fees for no service’ (FFNS) as raised in the evidence given at the royal commission,” it said in a statement.
“This investigation has involved the FFNS conduct and related false or misleading statements to ASIC.
“ASIC has, as part of its investigation, received many thousands of documents and undertaken 18 examinations of AMP staff. ASIC is also ensuring that compensation is paid to impacted AMP clients.”
Labor leader Bill Shorten said the revelations showed “change is needed”.
“It is needed desperately and it is needed urgently, and furthermore we cannot continue with Australia’s major financial institutions behaving in the manner that has been exposed already in the royal commission.”
But Mr Shorten also attacked the government, saying Prime Minister Malcolm Turnbull “owes Australians an apology”.
“The royal commission is discovering criminal activity. But if the Prime Minister had his way, there would be no royal commission, and none of this activity would have been discovered or exposed.”
When Mr Turnbull announced the royal commission last November, he called it “a regrettable but necessary action” to “stop the banks and our financial services sector being used as a political football”.
Mr Turnbull only called the royal commission after the banks themselves asked him to do so.
Fees for no service
It was revealed on Tuesday that AMP – a wealth management and insurance company that, among other things, controls a huge network of financial advisers – had been charging fees and collecting commissions for financial advice that was not given.
It emerged that thousands of AMP customers were still paying for advice even though their personal adviser had left the firm. Those fees and commissions were simply going into the company coffers.
AMP’s head of advice Anthony ‘Jack’ Regan admitted the decision to go on charging customers in this way was a deliberate decision, even though AMP had told ASIC it was an accident. The commission also heard AMP falsified documents to protect the company’s CEO.
The commission heard on Wednesday that the Commonwealth Bank had also been charging customers for advice they hadn’t been given, though there was no suggestion the bank had lied about it to the regulator.
Has FOFA failed?
Financial advice scandals are nothing new in Australia. Five years ago, a major scandal in the Commonwealth Bank prompted the then-Labor government to introduce the Future of Financial Advice (FOFA) reforms.
The sweeping legislation attempted to turn financial advisers into genuine, fee-for-service professionals who are required by law to prioritise their client’s best interests.
Prior to that financial advisers were behaving like salespeople, selling products and collecting commissions from the product providers. The headline reform of FOFA was a ban on commissions.
But the AMP revelations suggested culture in the advice industry had changed very little in that time, and that companies like AMP were still treating their clients as easy revenue streams.
Bernie Ripoll, the former Labor MP who was instrumental in designing the FOFA legislation, told The New Daily that the revelations, while “serious matters”, did not discredit FOFA.
“Has FOFA failed? No, it hasn’t failed, and no I’m not disappointed. The laws are in place and they’re good laws,” he said.
Rather, he said it demonstrated a “massive failure of leadership” and “a massive failure of corporate culture”.
“This is not the sort of behaviour you would expect from senior executives. There are no excuses for this sort of behaviour,” he said.
“It’s amazing, it’s outrageous, it’s unacceptable. Everyone who is a subject of the royal commission must consider the consequences of their actions – which is more regulation and more costs for their customers. The people involved have done a great disservice to their customers. These are pretty serious matters.”
The Commonwealth Bank will continue to give evidence on Thursday.