The Hayne Royal Commission has cost wealth giant AMP more than half a billion dollars in advice remediation and legal fees in 2018 alone, the company’s latest earnings announcement has revealed.
The cost of the royal commission to date for AMP comprises $469 million (post tax) in advice remediation and related costs and $32 million in legal and other expenses incurred in the preparation for, and response to, the royal commission, the company disclosed in its 2018 full-year results.
AMP shares closed 7.8 per cent lower at the end of trading on Thursday.
In July last year, AMP stated it had provisioned $290 million ($415 million pre-tax) plus a $50 million per year contingency, for three years, for advice remediation.
The latest $469 million disclosure is made up of this July provision, along with an additional $39 million in direct costs already paid out, $10 million in lost earnings and $130 million for “program costs” provisioned in January (all amounts post tax), an AMP spokesperson has confirmed.
The advice remediation program – created to address fees-for-no-service transgressions among the institution’s licensees – was brought into the spotlight during the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry. Commissioner Kenneth Hayne noted in his final report that AMP had a long rap-sheet of remediation responsibilities in advice.
“The amount that AMP expected to pay was $359.7 million, of a total amount of approximately $1 billion received by AMP in ongoing service fees in the 10-year period between 2008 to 2017,” Hayne noted.
The earnings announcement also revealed a net cash outflow of $3.968 billion from AMP’s Australian wealth management, compared with $931 million net cash inflows during the previous corresponding period.
Newly appointed AMP chief executive Francesco De Ferrari acknowledged the result – and the impact of the royal commission – in a prepared statement.
“2018 has been a challenging year for AMP,” De Ferrari said. “The royal commission has been a confronting but valuable experience for the financial services industry and has served as a catalyst for change at AMP.
“We have undertaken board and leadership renewal, accelerated client remediation and sharpened our focus on delivering better value to customers, including reducing fees on our MySuper products.”
High on the list of topics of interest for the analyst community on the earnings call was the $1.8 billion cash reserve the company continues to hold on its balance sheet. Analysts questioned the safety of the cash buffer in the context of the planned divestitures the company had announced.
The company is continuing the separation of the insurance business it has already sold to Resolution Life. Separately, it plans to float its New Zealand life insurance business.