AMP has issued a clarifying statement following interim chief executive Mike Wilkins' testimony to the Royal Commission that the fees-for-no-service issue was initially expected to cost $1.2 billion and take nine years to remedy. He also flagged more issues in relation to corporate super clients.
Fronting the commission yesterday, Wilkins said in February 2018 AMP's review and remediation committee endorsed a baseline approach to mediation for both fee-for-no-service and inappropriate advice which was initially estimated to take five years.
However, it was discovered that inappropriate assumptions were made and a reassessment saw the timeframe stretch to nine years, costing $1.185 billion in total. Wilkins admitted that in the most extreme cases, customers that had been charged fees but received no services since 2008 could have been waiting up to 17 years for remediation.
AMP has now said that figure and timeframes cited by Wilkins were early estimates that have since been recalculated with the total program cost now expected to be $778 million.
This is because the nine-year timeframe was rejected by AMP management and its board as unacceptable for customers and the estimated cost was materially attributable to that timeframe, the group said.
A decision has since been made to expedite the process by way of resetting the review and remediation program with a new completion target of three years from 1 July 2018.
"I asked the question what it would take to be able to do it within 18 months, because I felt that customers needed to be remediated as quickly as they could. The response was that we physically could not get it done in 18 months, and three years was the most likely timeframe to be able to complete this," Wilkins said.
As at October 31, AMP still has not remediated anything under the new program as it is yet to reach an agreement with ASIC as to how the process will be carried out, Wilkins said.
The Commission also heard that the three-year timeframe was calculated on the assumption that no further problems are identified. However, Wilkins admitted that AMP is currently "urgently sampling" workplace super members prompted by eight breaches identified by the company in October.
Senior counsel assisting Michael Hodge asked Wilkins: "Is the risk that AMP faces in relation to this that it may have another fees for no service case on its hands?"
Wilkins simply responded: "Yes."
In a statement today, AMP said it is investigating the provision of general advice to corporate super plans.
"The matter relates predominantly to small to medium corporate super plans established pre-FOFA 1 July 2013 managed by advisers. Based on current information, we believe the amount is unlikely to be material," the group said.
During Wilkins' appearance, it was also revealed a breach notification was made by AMP to ASIC ON 31 May 2018 in relation to the conduct of a managing director of one of its advice licensees.
Wilkins explained that an adviser was being off boarded as a result of compliance issues and attempting to sell their client book. A direction was given by AMP for fees to be turned off while clients were not receiving service, but the licensee's managing director overrode that direction. The managing director was later terminated.
"Is there a concern within AMP that, even now, it still needs to do a lot of work to ensure that its senior leaders understand the culture in relation to risk and compliance that the AMP board wants?" Hodge asked.
"The work is ongoing, but I do believe that there is a much better awareness now of the risk and compliance culture that is expected, partially as a result of some of the consequences that have been shown for previous behaviour, but also partially through the reinforcement that we have put in place, in terms of the policies and procedures and, more particularly, what is expected of people inside AMP," Wilkins said.
Wilkins later said it was a lack of clarity around what is acceptable and a lack of consequences resulting from inappropriate behaviour that has created AMP's poor culture. This has been compounded by underinvestment in risk, compliance and governance systems, he said.