AMP and Dixon fined millions by Federal Court
Five AMP companies will pay $14.5 million for charging close to 1500 superannuation members fees for no service over the course of about three years.
The Federal Court handed the fine to AMP Superannuation, AMP Financial Planning, Charter Financial Planning, Hillross Financial Services and AMP Life, which has since been acquired by Resolution Life. All five companies admitted to the misconduct.
Breaking the penalty down, $4.8 million will be paid by AMP Financial Planning; $720,000 by Hillross; $480,000 by Charter; $2.5 million by AMP Superannuation; and $6 million by AMP Life.
The fees for no service were charged to 1452 Flexible Super members who had access to general advice through their employer. Despite moving on from that employer and no longer having access to the services, they continued to be automatically charged the advice fee.
Between July 2015 and September 2018, AMP deducted more than $350,000 in fees even though it was aware these members had ceased their employment. While the institution remediated almost $700,000, the court found AMP didn't investigate whether it was a systemic issue or not, even though a significant number of complaints were received.
"Put simply, the advice licensees took money to which they were not entitled from the superannuation accounts of the affected members, and continued to do so for a long period of time after many complaints had been made. AMP Superannuation and AMP Life were knowingly concerned in those contraventions. While the conduct was not deliberate, it was extremely serious," the judge said.
"AMP was aware it was charging fees for no service to these members but did not take the proper steps to prevent it from continuing. AMP admitted liability regarding these failures and admitted it did not have the proper systems and compliance arrangements in place to ensure the payments ceased when members left their employer," says ASIC deputy chair Sarah Court.
"Superannuation trustees should treat the penalty imposed today as an important reminder to maintain robust internal governance and assurance arrangements. Trustees are responsible for ensuring they only deduct fees from member accounts for services actually provided. If they fail in this obligation, they could face significant penalties."
AMP was also found to have breached its obligation to act efficiently, honestly and fairly and to comply with financial services laws.
In handing down his decision, Justice Moshinsky said the failure to investigate the issue reflected poorly, particularly on AMP Life, calling into question its corporate culture.
"It is surprising and concerning that repeated complaints that the [fee] had been wrongly debited from the superannuation accounts of members who had ceased employment with their employer-sponsor did not lead anyone within the defendants (in particular, within AMP Life) to question whether there was a systemic issue," he said.
"While it is not suggested that senior management were involved in the contraventions, in my opinion it reflects very poorly on the organisational culture that this type of questioning did not occur."
Responding to the action, AMP said: "In 2018, AMP became aware that some AMP Flexible Super members continued to be charged a Plan Service Fee after transferring from their corporate super plan into a retail account. AMP took action to rectify the issue, self-reported it to ASIC, apologised to customers and subsequently completed the remediation of affected members."
"The remediation was completed in November 2019, with approximately 2500 customers being remediated a total sum of approximately $900,000 covering fees charged and lost earnings."
It added that the $14.5 million penalty has already been provisioned for in its half-year financial statements.
In separate court action, Dixon Advisory will pay $7.2 million for providing inappropriate advice and not meeting client best interests obligations.
The Federal Court this week found that six Dixon Advisory representatives did not act in the best interests of eight clients on 53 occasions. Each instance involved advising the clients to acquire, roll over or retain interests in the US Masters Residential Property Fund and URF-related products.
The conduct took place between October 2015 and May 2019. The URF is a unit trust and a registered managed investment scheme that sought to take advantage of the significant drop in house prices in the US during the Global Financial Crisis.
It was determined that the six representatives did not conduct a reasonable investigation of the clients' circumstances before providing the advice. In some cases, the poor advice resulted in the clients' SMSFs being insufficiently diversified and exposed to risk of capital loss, ASIC says.
Justice McEvoy said there is no evidence that reasonable investigations into the products or alternatives were conducted, nor that the personal circumstances of the clients were considered.
"The contraventions were not the result of isolated or unauthorised conduct of the representatives. Six representatives committed the contraventions over a period spanning some three and a half years," the judge said.
The total penalty applied was $10.38 million but Dixon Advisory was given a 30% discount for its cooperation and will instead pay $7.26 million.
"Licensees need to ensure their representatives are taking into account their clients' specific needs and circumstances," the ASIC deputy chair says.
"Advice that fails to reflect client circumstances − or advice models that lead to one-size-fits-all outcomes - are less likely to meet best interest duty obligations and can expose clients to a risk of capital loss."
Dixon Advisory is currently in voluntary administration but, if it resumes business, it will be forced to have appropriate systems and policies in place to ensure the conduct doesn't occur again. It has also said it is confident it can pay the penalty.
Dixon Advisory was also ordered to pay ASIC's costs of $800,000.
ASIC recently reminded former Dixon Advisory clients to register their complaints with the Australian Financial Complaints Authority before Dixon Advisory's AFCA membership is cancelled in April 2023.
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