SYDNEY (Reuters) - A unit of Australia’s biggest wealth manager AMP Ltd (AMP.AX) was sued by the corporate watchdog which accused its financial planners of knowingly reducing clients’ life insurance cover to earn higher fees, in another blow to crisis-wracked AMP.
In a federal court filing on Wednesday, the Australian Securities and Investments Commission (ASIC) said it was suing AMP’s financial planning arm after finding six representatives advised about 40 life insurance customers to buy new policies with lower levels of cover in exchange for higher commissions from 2012 to 2013.
The AMP unit knew about the practice, a violation of laws which require planners to act in their clients’ best interests, in 2013 but did nothing for another two years, ASIC added.
“The financial planners stood to receive higher commissions ... whilst at the same time exposing the clients unnecessarily to underwriting and associated risk,” ASIC said in a statement.
Century-old AMP has fared the worst in a bruising public inquiry into finance sector misconduct which has seen the exit of its chairman, CEO and several directors amid allegations the company charged clients for advice without providing it and then plotted at board level to deceive regulators about it.
The upheaval has sent the company’s market value down $3.5 billion in four months, prompting four shareholder class action lawsuits, an Australian record. ASIC has also said it is investigating the company separately over the so-called “fees for no service” scandal.
Losing in court to ASIC could hurt its chances of winning the four class actions. The case is scheduled to have its first court hearing on July 27.
An AMP spokeswoman said in an email the company had been co-operating with an ASIC investigation into insurance “rewriting” since 2014 and that it would “file its defence in due course”.
The wealth manager had removed authorization in 2014 from the only financial planner named in ASIC’s filing, and reported the individual’s conduct to ASIC in the same year, the spokeswoman said.
The company was “apologising to the customers impacted” and “they are currently being compensated”, the spokeswoman added, without giving a dollar figure.
The lawsuit is the second from ASIC this month against a large money manager’s financial planning activities. On June 15, the regulator said it was suing the country’s No. 2 bank Westpac Banking Corp (WBC.AX) over a financial planner it alleged gave poor advice for years.
In the AMP case, the regulator said it was seeking unspecified fines and court declarations that the unit failed to take all necessary steps to ensure its planners acted “efficiently, honestly and fairly” and within the law.
ASIC announced the lawsuit after the close of trading in which AMP shares fell 1.4 percent, just above decade lows, in a flat overall market.
($1 = 1.3546 Australian dollars)
Reporting by Byron Kaye; Editing by Muralikumar Anantharaman