AMP in hot water over poor advice

SYDNEY - AMP, Australia's largest life insurer, will offer to review advice given to 7000 pension customers, and may need to refund fees, after regulators found almost half of a sample of its recommendations were flawed.

The insurer failed to properly disclose the costs of recommended products, made statements that might have misled consumers and might have failed to manage conflicts of interest, the Australian Securities & Investments Commission said yesterday.

The findings, following a probe of a sample of advice given by Sydney-based AMP's 1,300 financial planners, might damage the company's reputation in Australia's A$905 billion ($1.1 trillion) pension-fund industry.

"Life insurers saturate tied advisers with their own product, not because it necessarily is the best product for the consumer, much more because it maximises the manufacturers' profits," Andrew Kearnan, an analyst at Merrill Lynch in Sydney, said in a report.

"AMP is arguably more at risk given their dependence on tied or external but owned networks."

Of 300 cases involving advice to switch from rival pension funds to AMP products, 45 per cent "failed to adequately disclose a reasonable basis for the advice," Australia's securities regulator said.

"We are disappointed," AMP chief executive Andrew Mohl said in a statement. "We know we need to improve our processes and procedures."

The insurer accepted there had been inadequacies. It would re-train sales agents, introduce new auditing and compliance procedures and hire an external expert to review and evaluate changes.

AMP would offer to review advice given to retail pension customers, to ensure it was reasonably based. Mohl said: "These customers had pension funds moved to AMP from a range of rival funds.

"Any financial impact of this offer is not material for AMP."

The regulator's head of compliance, Jennifer O'Donnell, said: "This represents a substantial shift in our focus on financial-planning advice." The focus would move to examining company procedures, rather than individuals, she said.

The regulator said 93 per cent of new investment or pension business flowing from AMP planners' advice between January 2005 and October 2005 was invested in AMP product.

"We suspect consumers will become distrustful of the industry in general as disclosures about poor advice and compliance and hidden costs continues to increase," Merrill's Kearnan said in his report.

Investment inflows into AMP Financial Planning rose 31 per cent to A$1.53 billion in the quarter ended March 31 from a year earlier.Net cash flows, which includes money withdrawn from investment products, rose 60 per cent to A$263 million.

AMP stock closed A15c, 1.7 per cent, higher to A$9.06 in Sydney. It's up 23 per cent this year, the third-best performer in the seven-member S&P/ASX 200 Insurance Index.

Shares in Axa Asia Pacific Holdings, Australia's No. 2 life insurer, rose A27c, or 4.5 per cent, to A$6.32, the highest since June 5.

- BLOOMBERG