AMP Limited (ASX: AMP) has fired its CEO, Craig Meller, and commenced an immediate review of its governance and reporting following recent questioning by the Royal Commission.
AMP is one of Australia’s largest financial planning groups and is the name standing behind many smaller financial planning offices.
A recent round of public questioning, undertaken during the Royal Commission into the banks and the financial services sector, has seen many skeletons fall out of the darkest closets of AMP and Commonwealth Bank of Australia (ASX: CBA).
Westpac Banking Corp (ASX: WBC), ANZ Banking Group Ltd (ASX: ANZ) and National Australia Bank Ltd. (ASX: NAB) haven’t been immune either.
The Royal Commission followed repeated news headlines of below-standard advice, scandals and allegations of poor culture among major advice groups.
ASIC recently released its findings of an in-depth analysis of financial advice businesses controlled by the five big players.
In 75% of the advice files from the big banks, the financial advisers did not demonstrate compliance with the duty to act in the best interests of their clients.
More concerning was that ASIC found: “10% of the advice reviewed was likely to leave the customer in a significantly worse financial position.”
You read that right — “significantly worse”.
Customers would have been better-off not seeing the advisers in the first place!
Money For Nothing
One of the key points from this week’s public hearings is the fees charged to clients who didn’t receive any advice. It’s called, “fee for no service”.
No, it’s not the title of a Dire Straights song.
But it is wrong. No-one should pay for things they don’t receive.
Aussies Deserve Better
Earlier this week, AMP fronted the Commission and its head of financial advice, Jack Regan, forgot how many times his company misled ASIC, the regulator, with false or misleading statements.
But it’s not just AMP.
News.com.au wrote an article this week titled, “Dead CBA clients charged advice fees”.
Mellor Steps Down
“I am personally devastated by the issues which have been raised publicly this week, particularly by the impact they have had on our customers, employees, planners and shareholders,” Mr Mellor said.
“I do not condone them or the misleading statements made to ASIC. However, as they occurred during my tenure as CEO, I believe that stepping down as CEO is an appropriate measure to begin the work that needs to be done to restore public and regulatory trust in AMP.”
The buck should stop at the CEO.
But we cannot blame one man for these outcomes.
The entire industry needs a shake-up because conflicted incentive schemes can eventually lead even well-intentioned advisers down the wrong path.
Of course, not everyone who works for these organisations has given poor advice to clients. But the only person who should pay an ‘expert’ is a client, either directly or via their employer. It should be a flat fee. Simple.
There’s a reason drug companies don’t offer doctors huge commissions to flog prescriptions.
As Charlie Munger says:
“Never, ever, think about something else when you should be thinking about the power of incentives.”
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