Banking royal commission told AMP deliberately withheld funds to save $86m

AMP has been accused of deliberately delaying the compulsory transfer of customers into low-fee super funds so it could profit from withholding, the banking royal commission has heard.

AMP deliberately delayed a mandatory transfer of customers into low-fee superannuation funds in order to reap millions of dollars in fees, the financial services royal commission has heard.

The wealth-management heavyweight realised it could lose $86 million in profit if it immediately moved customers to low-fee default funds in the first year they were introduced, according to confidential papers tabled on Thursday.

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Under rules introduced this decade, all people who did not choose specific investment options were required to be moved into low-fee MySuper funds by July last year.

The federal government introduced the reforms in 2012, but AMP kept 80 per cent of members’ savings in its higher-fee funds until the very last year of the transfer period, the royal commission heard.

Questioned at the inquiry, AMP director of regulatory governance Rachel Sansom disagreed that migration had been slow in order to maximise profit. She said AMP had wanted to ensure no mistakes were made during the transfer.

Counsel assisting the commission Michael Hodge, QC, showed “heat maps” produced for AMP by accounting firm PricewaterhouseCoopers, indicating which financial advisers would be hardest hit by the move to MySuper funds with no trailing commissions.

He noted customers in the two super funds likely to suffer the biggest revenue hit were the last to be moved.

Counsel assisting the commission Michael Hodge, QC

Ms Sansom said those two funds had the greatest “operational risk” as they were more complex products, so mistakes were more likely to happen during the transfer.

“I’m sure (the heat map) was taken into account but the operational risk would have usurped this analysis in the trustee’s eyes,” she said.

Mr Hodge also explored two cases of AMP overcharging fees. In one, $3.5 million in fees were simply charged when they should not have been, while in the other, $23 million in fees were not refunded as they should have been. AMP said it would refund the fees.

Mr Hodge pointed to the incidents as an example of the group’s super trustee not having oversight of fees charged by some of its subsidiaries.

Earlier in the day, it emerged a super cash-investment fund run by an AMP subsidiary had a negative return for three consecutive years.

The only reason the trustee found out was because banking regulator the Australian Prudential Regulation Authority raised the alarm in March this year.

Independent director of AMP Superannuation and N.M. Superannuation Richard Allert outside the royal commission.

AMP has said it would compensate affected customers, paying out about $5 million.

AMP trustee director and NM life trustee director Richard Allert said there had been a gap in monitoring.

Mr Allert said he had asked questions about how this had happened and administration fees would be reduced. But he said he could not reduce fees himself and had to negotiate with other AMP bodies who handled the investments.

Mr Hodge showed the records of a customer with money in NM Super’s 100-per-cent cash option who ended up with a negative return — after paying more than $780 in administration fees and more than $1200 in investment fees.

“You would have to ask the client why they did that ... they have left the cash there knowing the return they will get,” Mr Allert said.

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