Australian Ethical has divested from AMP because of the revelations made during the Royal Commission and the recent AGM.
Australian Ethical had around $8 million in AMP shares that have already been divested, says Stuart Palmer, head of ethics research at Australian Ethical.
Australian Ethical says that the Royal Commission “revealed there are systemic prudential and cultural issues at AMP. There have been serious breaches of AMP’s duty to clients, including ‘fees for no service’, failure to reprimand dishonest advisers and remediate clients, and keeping clients in expensive, inappropriate, legacy products and platforms.” Further, Australian Ethical says “AMP knowingly and deliberately misled regulators and there is sufficient evidence to show that these breaches are not isolated incidents,” and “senior AMP leaders consciously chose to prioritise AMP’s short-term profit at the expense of clients’ best interests and compliance with the law. Evidence revealed during the Royal Commission demonstrates that senior executives were involved in the misconduct, despite staff voicing concerns and knowledge that their actions were in breach of their licensee duties.”
Australian Ethical has applied its Ethical Charter and decided that AMP’s actions are in breach of the fund’s ethical standards, and necessitated divestment.
“The ethical charter has a number of relevant principles,” says Stuart. “We avoid unnecessary harm through miss-selling of products which cause individuals harm, or force people to excessive leverage or excessive debt. Those are the general principles.”
There was no single proviso in the Ethical Charter, but the core concerns about the decision to charge AMP clients fees for no service, and the fact that the decisions were being made at the senior level of the advisory business led Australian Ethical to make its decision.
“Given the serious of the wrongdoing that was identified by the Royal Commission, and given the challenges in remedying systemic cultural issues within an organisation, it was a decision to divest,” Stuart says. “There was a consensus that this was the appropriate course of action.”
Australian Ethical invested in AMP in 2016, and sold the shares at a loss, Stuart confirms. Because of the seriousness of the conduct within the organisation, engagement with AMP about how the company would improve future behaviours was not an appropriate remedy, he says.
“As you know, engagement is an important part of what we do, but there are independent tests for screening of investment. Where they’re aligned with our charter, and in case of serious wrong-doing, where they’re not aligned with the charter, almost independent of the engagement potential, that’s a trigger for divestment,” he says.
Stuart notes that Australian Ethical is underweight the Australian financial services sector, based on application of the ethical charter more broadly.