ASIC dropped AMP right in the financial
planning poo yesterday, but the scandal is actually worse than it looks, certainly
worse than ASIC is intimating with the enforceable undertaking deal it cut with AMP and vastly worse than AMP is
admitting.

AMP appears to be in denial about the
ramifications of its financial planning sales force not even getting the
paperwork right half the time, let alone the ramifications of their advice very
often being coloured by how much commission they can make, rather than what is
best for the client. AMP is pretending only its little toe has touched the
doggy do, when it’s actually in it up to its very rich corporate neck.
Ambulance-chasing class action lawyers, check it out.

ASIC has caught Australia’s second biggest
chain of financial planners red handed, but the spin AMP is trying to put on it
is that the only real problem was some planners failing to fill in all the
paperwork – they didn’t provide customers with a reasonable reason for
switching them out of existing super funds into AMP products. AMP is not
admitting the actual switch was very often not in the client’s best interest,
incurring various charges and higher fees – fees that just happened to provide
commission income for the “financial planner”. Oh, say AMP CEO Andrew Mohl and
AMP Financial Planning MD Craig Dunn, one or two might have done the wrong
thing on the actual advice as well, but nobody’s perfect and now that ASIC has
caught us, we’ll make it up to those couple of clients.

Frithy points out the nonsense of some of
the AMP line in The Oz
but it still goes further.

AMP and ASIC have agreed to play a game of
pretending the potential problem only relates to 7,000 clients who switched
superannuation funds after getting advice from AMPFP. AMP is quick to assure
the market that this represents less than 1% of its client base and
only about $100 million, 1.5% of AMP Financial Planning’s new business
cash flow.

But unless the other 99% of clients
are particularly thick, they might well wonder if they too were sold a
commission-influenced pup by that nice, reliable bastion of financial
respectability.

AMP is underlining that its planners are
only required to give “appropriate” advice – it doesn’t have to be the best
possible advice, or even try to be.

Not all AMP financial planners fall victim
to the moral hazard of their remuneration structure, but such a large
proportion do (according to ASIC’s “shadow shopping”) that they are all
suspect.

In an interview that will be up on the
Eureka Report site later today, Craig Dunn tries to distance AMP from whether his planners
run a commission-based or fee-for-service business. AMP doesn’t care, he says.
He does admit the vast majority go the commission route, but wouldn’t give a percentage.

ASIC is only scratching the surface because
it still allows the captive financial planning chains to get away with just
about anything as long as they disclose it to clients. The reason most punters
go to planners is because they don’t understand what’s best for them
financially – so how are they supposed to know whatever’s been disclosed to
them is good or bad?

As long as there remains a structural
corruption at the heart of the industry, the scandals will keep coming – and so
will mud to stick to AMP and its peers.

Peter Fray

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