AMP’s financial planning unit was hit Wednesday with an enforcement action by the corporate regulator alleging its planners generated extra commissions by replacing, rather than transferring, life insurance policies for existing clients.
The Australian Securities and Investments Commission claims in its Federal Court case that AMP’s financial planners earned “substantially higher commissions” after advising clients with existing life or other insurance policies to apply for new policies whenever they sought to change coverage, in a process known as churning.
The case is separate from ASIC’s investigation into AMP’s fees-for-no-service conduct and its false or misleading statements relating to the scandal, as revealed by the Banking Royal Commission.
“ASIC alleges that certain AMPFP financial planners engaged in ‘rewriting conduct’ – which is providing advice that results in the cancellation of the client’s existing life, TPD, trauma and/or income protection insurance policies and the taking out of similar replacement policies by way of a new application rather than by way of a transfer,” the watchdog said Wednesday.
“By advising clients to submit new applications, the financial planners stood to receive higher commissions than they would have received under a transfer, whilst at the same time exposing the clients unnecessarily to underwriting and associated risks. ASIC alleges that this type of advice was inappropriate, and that the financial planners failed to act in the best interests of the clients and to prioritise the interests of the clients.”
A spokesperson for AMP said it had been cooperating with an ASIC investigation of the matter, which began in 2014.
“AMP will carefully consider ASIC’s pleadings and file its defence in due course. In the meantime, we will work with ASIC to agree a timetable for the progress of the proceedings,” the spokesperson said.
“We have continued to enhance our monitoring and supervision activities to monitor the writing of new insurance policies.”
The commission alleges that from July 1, 2013 to June 30, 2015 AMP knew, or should have known, that its authorised planners were engaging, or were at risk of engaging, in “rewriting” and knew it was harmful to customers.
AMP failed to take reasonable steps to prevent the misconduct from occurring, in breach of section 961L of the Corporations Act, ASIC claims. The maximum penalty for the civil breach is $1 million per contravention.
The company also broke the law by failing to ensure that the financial services covered by its licence were provided efficiently, honestly and fairly; failing to comply with financial services laws; and failing to take reasonable steps to ensure that its representatives comply with the financial services laws.
The conduct involves current and former AMP financial planners, including Rommel Panganiban, who was permanently banned by ASIC from providing financial services in September 2016.
AMP said its financial planning unit removed Panganiban’s authorisation in 2014 and reported his conduct to ASIC.
“AMP is apologising to the customers impacted by Mr Panganiban’s actions and they are currently being compensated,” the spokesperson said.
ASIC said its case would rely on sample client files. A directions hearing is scheduled for July 27.
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