Embattled financial services giant AMP has revealed it will set aside a whopping $290 million to compensate customers who received poor financial advice, and a further $35 million annually to improve compliance structures.
AMP has arguably suffered the largest fallout thus far from the banking and financial services commission, with a string of revelations of dodgy financial advice, compliance breaches and poor risk management processes.
In a recent speech, Australian Competition and Consumer Commission chair Rod Sims used the example of AMP to push for higher penalties for non-compliance in a bid to stamp out corporate wrongdoing.
“The evidence about the conduct of AMP was particularly damning. The resulting damage to AMP’s brand reputation has been substantial,” he said.
In an update in the lead-up to its 2018 interim results, the company revealed that in the first half of 2018 alone, it is expecting to have provisioned $290 million “for potential advice remediation in relation to ASIC reports 499 and 515, which require an industry-wide ‘look back’ of advice provided from 1 July 2008 and 1 January 2009, respectively”.
Additionally, AMP said its post-tax spend on boosting compliance and risk management controls will rise by around $35 million annually over the next two years.
AMP also said it would deliver “improved value for around 700,000 super customers” by cutting fees on its MySuper products, but did not say how much these fee reductions will cost it.
Nevertheless, the company still managed to turn a profit estimated at between $490 and $500 million, and will still pay out dividends to shareholders “at the lower end of the 70 to 90 per cent guidance range”.
“Today’s announcement reflects our commitment to take decisive action to reset AMP and establish a platform from which the business can recover rapidly. We’re facing squarely into the issues that have impacted our reputation and the community’s confidence in AMP,” acting CEO Mike Wilkins said.
“Our remediation provision responds to industry-wide issues raised by ASIC in its reports 499 and 515 and reflects a conscious business response to increased community expectations. This remediation program is complex as it will address both employed and aligned advisers, and we understand it is one of the first programs to do so. We are working on the program with our advisers, the vast majority of whom are dedicated, professional and committed to meeting the advice needs of their clients.”
Mr Wilkins added: “Customer needs are our immediate priority, as we firmly believe this will also best serve the long-term interests of shareholders. We know it will take time to earn back trust; however, today is an important milestone in that process.”
The head of the royal commission, Kenneth Hayne, recently said he expects to hand down his preliminary findings by 30 September this year.
Adam Zuchetti is the editor of My Business, and has steered the publication’s editorial direction since early 2016.