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.
Two of AMP’s platforms, WealthView and PortfolioCare eWRAP, were found to be uncompetitive as far back as 2013 and were put on hold (ie, closed to new investment) in 2016.
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.
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 10,5000 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.
However, despite internal discussion in 2015, there was no decision to make the platforms more “competitive on price”, Mr Keating said.
“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.
AMP has produced eight benchmarking guides for its affiliated advisers between July 2013 and October 2016, according to Mr Keating.
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, ranging from 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 be taken by AMP advisers if their clients are invested in ‘red’ platforms.
Of course they’re trapped. If you consider moving them out and it affects their age pension, look out. So you leave them where they are in a legacy product with no fee reductions, no enhancements whatsoever. Now, we know government policy contributed to this, but I do wonder if the product manufacturers are making the most of it. How many legacy platforms are out there? Why do they keep creating a new product instead of updating the existing one? Why do the BDMs then pull out the BID line saying you need to review all your clients in the legacy product to see if they are better off in the new one? That’s extra work at cost to the client. Never see the product manufacturer picking up the tab for this work