Australian Ethical divests AMP

Australian Ethical will divest AMP following the governance failures exposed by the Royal Commission.

Speaking to Financial Standard, Australian Ethical head of ethics research Stuart Palmer said while AMP passed its ethical screening in 2016, and the manager currently holds about $8 million in the stock, AMP's conduct as revealed by the Royal Commission could no longer justify investment.

When asked why Australian Ethical was invested in the first place, given the governance issues highlighted by ASIC over the past decade, Palmer said "these things were certainly concerns."

"They were out there. The specific issue of fees for no service was known well before the Royal Commission, but on balance given the changes we saw happening inside AMP they still passed the screening," Palmer said.

Palmer believes the new information the Royal Commission brought to light was that many issues characterised by AMP as "administrative errors" were in fact considered business decisions.

"It was a considered decision, in the face of internal recommendations to stop the practice, to continue charging clients when they were put into the BOLR pool. We also learned that AMP misled ASIC about the nature of this practice," Palmer explained.

Financial Standard asked whether continued investment in AMP represented a failure of due diligence by ethical investment managers. Palmer said the issue was complex.

"There was definitely a history with AMP, such as the enforceable undertaking which goes back to 2007. We did see a lot of reaction to those concerns. But the challenge we face when we see this conduct in big complex institutions is whether it's isolated - whether it's individuals or systemic. And we've seen how hard it is even within an organisation like AMP to make that call; we've seen senior leaders in AMP being unable to judge sufficiently whether those issues are systemic or otherwise," Palmer said.

What this highlights, he continued, is the need for investors, regulators and businesses themselves to make a distinction between the inherent complexity of financial services and the "additional complexity that creates greater opportunity for customer interests to be sacrificed to advance employees' personal interests."

"I think everyone is looking at these issues - what are the additional fixes to be made in terms of the technology we use, in terms of identifying planners with a basket of highly-geared clients, and how we should investigate that planner. It's very concerning that action wasn't taken against planners like that," he said.

Australian Ethical will remain exposed to two Australian institutions which have appeared before the Royal Commission: NAB and Westpac. But this may change based on further findings or recommendations made by the Commissioner.

"Our general approach to any organisation is that it's extremely important to have evidence about their governance. We expect in the normal course that we will see all the hearings completed, and in doing so see more from Westpac and NAB - in particular their small business lending - and after that, let's see what comes out of it. That's the plan, but if information arises with the same seriousness as AMP, we'll act sooner," Palmer said.

AMP has responded to the Royal Commission findings, saying its fees for no service issue is old news; preparation of a Clayton Utz report into the issue has been overstated; and its misleading representations to ASIC have also been overstated.

AMP also held its annual general meeting today.

Read more: Royal CommissionAustralian EthicalASICNABFinancial StandardWestpacBOLRClayton UtzCommissionerStuart Palmer
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