Coronavirus: Young warned on super shift

AMP Australia chief Alex Wade has urged younger super account holders to “think carefully” about adjusting their risk appetite.

AMP's Alex Wade heads its wealth and banking divisions. Picture. John Feder

AMP Australia chief Alex Wade has urged younger superannuation account holders to “think carefully” about adjusting their risk appetite, as fears linked to the COVID-19 fallout spur a shift into defensive asset classes.

The pandemic has roiled financial markets and caused wild swings in the past three weeks, as infections have swelled and stoked fears of a prolonged global recession.

Mr Wade, who is responsible for AMP’s wealth and banking divisions, said the group was seeing an increase in members shifting into defensive asset classes such as cash and fixed interest.

“Reassuringly many of our members nearing retirement are in our life cycle fund options, meaning they already have a relatively high exposure to these defensive asset classes,” he said.

“These funds are designed to manage the sequencing risk associated with market volatility, which becomes particularly important as people near retirement.”

But for younger age brackets, Mr Wade cautioned against a knee-jerk reaction to current volatility in financial ­markets.

“We believe younger members should think carefully before changing investments, which can crystallise losses — their super balances will have time to recover and grow before retirement.”

AMP has enacted business continuity plans as the nation navigates the unprecedented coronavirus crisis, and despite the disruption Mr Wade isn’t shying away from meeting milestones set in the group’s three-year transformation plan.

“Our client contact centres, advisers and workplace super teams are all talking to clients regularly, and we’re providing regular insights and updates from our experts. The situation is changing daily and we’ll continue to monitor it closely, taking advice from government authorities,” he said.

“We remain committed to delivering our 2020 priorities and longer-term transformation ­program.”

AMP’s shares, like its peers, have been hard hit in the past three weeks. The stock closed record lows of $1.31 on Friday and is 31.6 per cent lower so far this year.

Investors also digested a report from Moody’s Investors Service last week, which cut some of AMP’s ratings and warned of continued net cash outflows from its wealth arm.

Moody’s downgraded the rating of AMP’s life insurance division and several medium-term notes.

At the time, the company said the downgrade was “not material” to its operations and it had capital of $2.5bn above regulatory ­requirements.

On outflows, Mr Wade said the brand damage caused to AMP by the Hayne royal commission had stabilised and the company could “turn the corner”.

“The real benefit comes as we complete our simplification ­program.”

Last month, AMP reported a 32 per cent slump in 2019 underlying profit, as earnings were dragged lower by its wealth unit and mammoth fund outflows of $6.3bn.

AMP chief executive Francesco De Ferrari’s transformation plan includes overhauling the financial advice unit, meaning fewer planners, and cutting the number of superannuation products.

Mr Wade said he saw a bigger opportunity in the financial advice sector for AMP, following the exit of many banks. But he also stressed it was important for the industry to work more closely with the government and regulators to address the “advice gap” and the issue of making financial advice more affordable.

“It has to be a team game if we are really going to change it for Australians,” Mr Wade said. “We need to work together as an industry to change some of the big things. We are trying to achieve Australians being better off in retirement, so that’s not just super, that’s not just real estate, that’s not just other investments, it’s the whole picture.”

Mr Wade said part of the solution is providing more advice through digital channels, due to face-to-face advice becoming more expensive.

He is confident AMP can “win back trust” after its royal commission battering if it executes its strategy well.

Despite criticism around a vertically integrated model — housing a bank and a wealth business — he is of the view any conflicts can be managed.

“We are very aware and are very closely managing conflicts, but ultimately if we put our clients’ needs first then we are doing the right thing.”

AMP’s submission to the Retirement Income Review called for improved financial literacy and education and simplification of the “complex retirement income system”.

It also urged better measures to address inequality in superannuation, such as that confronted by women and carers.

While there was “no silver bullet”, AMP said introducing tax deductibility for the preparation of financial plans and changing processes to enable better access to scaled or episodic advice, were a good start to improve the system.