AMP has admitted to the royal commission it failed to reprice investment products that its internal benchmarking identified as being ‘uncompetitive’ against the broader market.
The royal commission’s public hearings into the financial advice sector continued on Wednesday morning with AMP head of platform development John Keating taking the stand.
Counsel assisting Michael Hodge asked Mr Keating about AMP’s internal benchmarking guidelines, which compare the company’s investment platform pricing with an average of the market.
AMP has produced eight benchmarking guides for its affiliated advisers between July 2013 and October 2016, according to Mr Keating’s statement to the royal commission.
The guides were established in 2013 to help AMP’s advisers comply with the best interests duty contained in the Future of Financial Advice (FOFA) regulations, said Mr Keating.
There are four colour-coded ‘tiers’ in the guides: bright green, light green, yellow and red.
Products rated ‘red’ differ from the market average by more than 15 per cent and are deemed to be “uncompetitive”, while ‘yellow’ products differ by between 10-15 per cent.
The AMP guides recommend a range of actions that should be taken by AMP advisers if their clients are invested in ‘red’ platforms.
The line of questioning pursued by Mr Hodge focused on two AMP platforms: the pension product WealthView and PortfolioCare eWRAP.
WealthView is predominately used by AMP Financial Planning advisers, Mr Hodge established, while PortfolioCare eWRAP is used by Hillross advisers.
Mr Keating accepted that both platforms were rated either ‘red’ or ‘yellow’ in the 2013 benchmarking guide and became less competitive until the final guide was released in October 2016, at which point both platforms were predominately 'red'.
In 2016 both platforms were placed on hold, and can only receive new money with the express permission of AMP's research team that manages the approved product lists (APLs), said Mr Keating.
In 2013 there were 20,000 clients invested in PortfolioCare eWRAP, of whom 90 per cent were advised by Hillross planners. That number had almost halved to 10,500 by 2017.
Roughly 96 per cent of the 2,401 clients invested in WealthView were directed into it by AMP Financial Planning advisers, Mr Keating agreed.
Mr Keating said the earliest he was aware of the benchmarking report and the ‘uncompetitive’ ratings for PortfolioCare eWRAP and WealthView was 2015, at which point he initiated talks with AMP’s product team.
However, there was no decision to make the platforms more “competitive on price”, Mr Keating told the royal commission.
“So you know they were being charged a price uncompetitive with the market but decided not to adjust your price?” Mr Hodge asked.
“That’s correct. There are choices for advisers with similar products to use with alternative pricing,” Mr Keating replied.
Mr Keating defended the decision of AMP advisers not to take their clients out of the uncompetitive platforms on the basis that they could be adversely affected under the Centrelink deeming rules.
Another reason to for clients to stay put, Mr Keating suggested, could be that they would be placed in a worse position regarding their insurance arrangements.
Mr Hodge suggested clients were therefore “trapped” in the platforms, but Mr Keating rejected the idea.
You can follow the royal commission hearings at a live blog at InvestorDaily's sister publication ifa.