Wealth Management Advice - Asic V Amp

FINS3637: Wealth Mgmt Advice

Group Assignment: Case Analysis

ASIC vs AMP

The Australian Securities and Investments Commission has found that AMP's network of financial planners used flawed advice to lure people into switching super funds, so the company could make profits and the planners could make fat commissions. It was established that 45% of all cases reviewed did not adequately disclose a reasonable basis for advice.

ASIC investigated AMP for six months discovering a series of problems. Among them, AMP planners failed to disclose reasonable basis for their advice, encouraging people to switch super funds. AMP failed to make proper disclosures about the cost of switching to new products and the consequences of replacing existing products. AMP's financial planning sales team were paid by commission and were not allowed to recommend clients to open super accounts with industry super funds. ASIC found that AMP did not implement adequate arrangements in order to manage conflicts of interest. Statements were made on AMP's website suggesting that planners could consider a broader range of products than permitted, misleading consumers. These failings breach the Corporations Act and required action from ASIC.

The Managing Director of AMP Craig Dunn agreed that things must change. "It is disappointing, we are sorry it's happened and we are now going to work very quickly to correct... so that is doesn't get repeated into the future". AMP chief executive Andrew Mohl accepted there had been inadequacies in its processes and procedures. "In some cases, the reasons for recommending changes to superannuation's arrangements were not as well documented as they needed to be. " AMP has admitted that further instructing and training of planners was necessary and maintaining a different legal approach and opinion to ASIC led to many problems and inconsistencies.

The decision instilled by ASIC under the enforceable undertakings stated that about 7000 of AMPS 720,000 clients were to be offered a review of their advice. Where it had no reasonable basis, recredit of entry fees, compensation for exit fees and a transfer of balances back t original funds. AMP Financial Planning also agreed to change how it advised clients and to compensate clients if necessary.

Regulation by ASIC is effective in order for a positive development in the financial planning industry. The Enforceable Undertaking commits the company to major compliance improvements. This strengthens the quality of advice given throughout the financial industry. The EU sends an important message to the financial planning industry. "A great emphasis on disclosure and advice that is formulated with the client's needs and circumstances are fundamental. Where we find licensees are not conducting themselves in line with this cultural change, we will act."

Australian Securities and Investment Commission conducted surveillance of AMP's Financial Planning sector from October 2005 to April 2006, in line with Section 912E of the Corporations Act 2001 stating that all financial services licensees and representatives must assist ASIC to ensure they are complying with all relevant laws. This then led to an investigation under Section 13 of the ASIC Act 2001, where it was believed that AMP Financial Planning had contravened Corporations Law.

AMP Financial Planning's major pitfall was in the fundamentals of providing financial advice. Theoretical models of Financial Planning introduced in class, in particular Week 1, state that the Statement of Advice must contain full disclosure, be in detail and cover all aspects of the new financial plan. It also states that the client must be fully aware and completely understand the implications of the new financial plan being offered to them. It was reported by ASIC in the Enforceable Undertaking (EU 2.4) that approximately 45% of files relating to superannuation switching advice contained inadequate information to the client, and the AMP's templates of Statements of Advice contained inadequate information.

These issues violated Section 947C and 947D of the Corporations Act 2001 in relation to the main requirements of a Statement of Advice given by a financial services licensee or an authorised representative. It states that the Statement of Advice must "include information about the basis for which information was given as well as information about any remuneration and commission or other benefits that may be received that may be expected to be or have been capable of influencing the entity in providing the advice." ASIC found that 93% of all new investment and superannuation business resulting from advice by AMP financial planners was invested in AMP platforms and products (EU 2.4.3). Whilst this is not atypical in the financial planning industry, Statements of Advice did not adequately convey to the client the fees they would receive from going ahead and implementing the advised plan.

Week 4 of class also introduced the role of Financial Planners in relation to providing superannuation advice. In addition to general compliance, superannuation switching advice must also contain information about any additional charges with switching funds, any benefits lost as a result and any other events of significance that may occur. AMP Financial Planning did not sufficiently disclose the management expense ratio, performance-based fees, as well as the differences in costs associated with switching from their existing product to the recommended product.

Another flaw in AMP's business model was they had directed their planners that they could not make any recommendations about a client's existing product if it was not listed on their Approved Products and Services List (APSL), which would fail to completely understand the client's current circumstances and financial position (EU 2.5). AMP Financial Planning did not provide a reasonable basis of advice given that it didn't fully understand the client's current financial product as it was not on their own APSL. ASIC deemed that this violated Section 945A of the Corporations Act 2001, where "The providing entity must only provide information to the client if the providing entity determines the relevant personal circumstances in relation to giving the advice and makes reasonable enquiries in relation to those personal circumstances."

Essentially, AMP Financial Planning failed to gather and analyse all information in relation to the current financial position of the client and make decisions and give advice in consideration of this information, a concept heaving focused on in