Banking royal commission: 5-year wait for alerts about underperforming AMP funds

It could take more than five years for AMP’s super trustee board to learn of poorly performing products, inquiry hears.

Commissioner Kenneth Hayne makes his opening statements as the fifth round of the financial services royal commission gets under way. Picture: David Geraghty/The Australian

AMP had policies which meant the board of its superannuation business was not told about “significantly underperforming” products for more than five years, the royal commission has heard.

The royal commission, which is today examining the spider web of AMP (AMP) superannuation businesses, also heard a case where a 58 year old woman who had invested her retirement savings in a cash management trust with AMP was being charged so many fees she was losing money on the super investment.

Richard Allert, the Chairman of AMP Superannuation Limited and NM Superannuation Limited director, said the $120 billion wealth manager considered the issued “closed” on gouging of savers invested in cash instruments after the company reduced its administration fees to 50 basis points.

AMP Superannuation Limited chairman Richard Allert.

“We can avoid (the investment return) being negative and, in this customer’s case, it will be marginally positive,” Mr Allert told the royal commission.

The royal commission was shown member statements revealing that in 2015, the customer with almost $90,000 in savings made an investment return of just 0.47 per cent. Three years later, that return had sunk to a negative 0.39 per cent return, meaning the customer was losing money on her super.

“If you invest it in an interest bearing account with AMP Bank you’ll get a much higher return?” asked counsel assisting Michael Hodge. “Yes that’s true,” Mr Allert said.

“Why is it that someone who puts their retirement savings in NM Super … ends up with substantially less returns?” Mr Hodge. “You would have to ask the client,” Mr Allert said.

Mr Hodge said: “Your position is why are they foolish enough to invest their superannuation with AMP?”

Mr Allert: “No that’s not what I’m saying at all.”

Mr Hodge: “But isn’t that your point?”

Mr Allert: They left the cash there knowing the return they’re getting.”

The royal commission heard AMP only found out about the gouge after the prudential regulator told the superannuation industry it was doing a sector-wide review of cash investments run by nest egg managers.

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The royal commission heard that AMP’s trustee board for its superannuation products would likely not learn about terribly performing products for a period of more than five years.

A document shown to the commission outlining the so-called “BMM” policy, showed the trustees were informed of poorly performing investments only if an “exception” had been triggered, in which there were three hurdles that had to be met. First, the investment had to book “significant underperformance” against benchmarks for at least 36 months. Second, the investment needed to be placed under investigation. And third, the investigation needed to remain open for more than eight quarters.

The @australian’s Ben Butler on the banking royal commission: NAB has completely failed to grapple with the seriousness of what they’ve done, and their various proposals for remediation are completely unacceptable.

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— Sky News Business (@SkyBusiness) August 15, 2018

“It would be necessary for an investment to underperform for more than 5 years for it to be reported to the board?” Mr Hodge asked. “Of course not,” Mr Allert responded.

“Does the board receive the quarterly investment performance report?” Mr Hodge asked. “I don’t think than it does. We would not always get this report,” Mr Allert said.

The royal commission heard that AMP’s two trustees, AMP Super and NM Super, trade services and management fees with a host of related parties inside the AMP conglomerate, including AMP Life, AMP Capital and NMMT Limited.

At a board meeting in 2017, it was discussed that all fees were not subject to regular reviews and all were not legally documents, the royal commission heard.

“Your ability to do anything for your members, is dependent on decisions made by AMP Life and NMMT,” Mr Hodge asked. Mr Allert said decisions were made by AMP Life to lower fees and then it was a decision that was approved by the trustee board.

In late July, just weeks before it was scheduled to appear at the royal commission, AMP said it would also be lowering fees charged to its 700,000 customers in MySuper products, which are legally required to be low-fee simple super products. It said pricing reductions would be implemented in the third quarter, and was expected to result in a $50m hit to its wealth management revenue.