Financial service system not broken says Murray

Australian Financial ReviewMay 6 2018 11:45 PM

James Thomson, Alice Uribe

Incoming AMP chairman David Murray says the vertically integrated model is not dead in financial services and warned that the banking royal commission has given people the impression that the system is more broken than it is.

Mr Murray, who was appointed to the beleaguered financial services giant last week after Catherine Brenner resigned, said on Sunday that while the Hayne royal commission had uncovered very serious problems in the financial services industry, it had created an "unusual" environment for the sector.

"There is no industry you can consider that doesn't have issues, but the royal commission tends to bring them forward and throw them out in a way that deals with the most egregious," Mr Murray said in an interview with The Australian Financial Review on Sunday.

"It gives people the impression that [the] system is more broken than maybe it is."

He gave the example of recently discovered problems with car airbags that he said have been "killing people"; while some consumers might want the issue instantly fixed, the automotive industry has been given time to deal with the problem in a measured way.

Mr Murray has been a noted defender of the vertical integration model under which a financial services company manufactures and sells its own products. He said his work as chair of the federal government's 2014 Financial Systems Inquiry had informed his view that vertical integration is not the sector's biggest problem.

"The issues that have got to be dealt with are the way in which advice is given, they way in which it's remunerated, the way in which advice and product work together in those models," he said.

"I think there's a risk here if we say the problem is vertical integration and major players get out of vertical integration, then we may miss the key issues.

"The financial system is at risk now of losing the confidence of the community and that won't change unless the major pillars in that system each do something to restore confidence in their own constituencies."

Mr Murray will not join the AMP board until after the company's annual general meeting on May 10, which is looming as a flashpoint for investor anger at the group.

AMP directors Andrew Harmos, Vanessa Wallace and Holly Kramer face losing their board seats at the hands of irate shareholders who have seen $4 billion wiped off the value of AMP in the last month following revelations before the royal commission that it repeatedly lied to the corporate regulator.

On Sunday, AMP's acting chief executive Mike Wilkins pressed investors not to make any "knee-jerk reactions" at Thursday's AGM.

"You're as aware as I am that there have been suggestions that three of our directors will be voted off our board at our AGM this coming week," Mr Wilkins said.

"I don't think that's in the best interest of our shareholders. All that does is create further instability at a time when the organisation doesn't need anymore instability.

"Certainly I think our board will change, but David [Murray] should be given the opportunity to lead that change."

Mr Murray backed Mr Wilkins.

"The board appears to me to be absolutely determined to fix this up and to make changes to the board structure," he told the Financial Review.

"They [shareholders] can be angry and fire all three directors or they can consider that this company has already faced up, with loss of its CEO and its chairman, in a way that others haven't."

Mr Wilkins, who has been meeting big investors over the past week, said "it was too early to tell" which way proxies would vote ahead of Thursday's annual meeting.

But shareholders appear to be holding firm.

Allan Goldin from the Australian Shareholders Association on Sunday congratulated AMP on convincing Mr Murray to join the board, describing him as "probably the most respected Australian name in the finance area".

"But that is no reason to change votes on the three directors up for election," he said.

The ASA has recommended shareholders vote for the election of Mr Harmos and against the re-election Ms Kramer and Ms Wallace

AustralianSuper, the country's biggest superannuation scheme, is planning to vote against both the re-appointment of three AMP directors and the wealth group's remuneration report at this week's annual shareholder meeting.

It is the first time the fund has voted against both the re-election of directors and the remuneration report of a large company and reflects the depth of the $130 billion scheme's despair at the findings of the royal commission into AMP's conduct unveiled by the banking royal commission.

"This is a vote for board governance, accountability and renewal in light of recent events," said a spokesman for the fund, which holds $290 million of AMP shares

Also not budging is CGI Glass Lewis, which last week reversed a decision to spare the embattled AMP board, and sent out a revised report recommending against the re-election of the three directors.

While AMP on Friday rejected suggestions from senior counsel assisting the commission, Rowena Orr, QC, who has recommended that criminal charges be laid against the company for misleading ASIC, Wilkins conceded AMP had "let a lot of people down" and said the company wasn't hiding from investor and stakeholder anger

"We accept there is some collection governance responsibility that we've got, and what we also want to do, in particular, is fix AMP for the future," he said.

"The message I've been looking to give internally and need to get out externally, is that we focus on the future and that's what I've been concentrating on."

Mr Wilkins said his personal view was that there is nothing wrong with vertical integration, provided there was transparency in the model.

"But what I think you need to have in any vertically integrated [business] is more parts working together, and you need to make sure there is transparency about how those parts fit together," he said.

Mr Wilkins said breaking up vertically integrated groups may actually mean less safety for consumers.

"When issues occur, and let's be honest issues always occur, having the financial strength means customers can be made good."

Mr Wilkins said he had no plans to stay on as chief executive.

"Once David [Murray] comes on board, I'll step back from being executive chairman to acting CEO. And when we get a full-time CEO in place then it would be my intention to return to my role as a director," he said.