AMP to compensate super investors after fresh humiliation at royal commission
The embattled wealth management giant AMP will pay $5m to compensate almost 50,000 superannuation fund members short-changed by their investments after another humiliating day for the ASX-listed firm at the banking royal commission.
AMP admitted at hearings in Melbourne on Thursday that a customer had lost money after investing $100,000 cash in a super account thanks to high fees and charges.
When asked why the customer should keep their savings in the cash product when they could get a better return in a normal term deposit account, an AMP executive said: “You’d have to ask the client.”
After seeing its chairwoman and chief executive stand down after revelations about fees for no service at the royal commission earlier this year, AMP acted swiftly on Thursday by announcing compensation for other people who ended up paying more in fees than what they earned on their cash investments.
About 12,500 current members with $43m invested would benefit, with former fund members to also share in the $5m compensation.
Australia’s largest wealth manager has also uncovered further cases of customers being wrongly charged fees, which will lead to about $26m being paid to millions of super members.
In addition, AMP has cut some administration fees after 47,000 people whose retirement savings are wholly invested in cash ended up with three years of negative returns.
The payouts were sparked when AMP executive Richard Allert, the chairman of AMP Superannuation and NM Superannuation, the trustees of AMP super funds, endured an uncomfortable session in the witness box on Thursday.
The commission heard that one customers invested $100,000 in AMP’s Super Directions cash management trust investment option.
After 12 months, the customer’s rate of return was roughly $380 after direct fees ($76.85), administration fees ($1,666.72), and rebates ($20.10) and interest were taken into account.
After three years, the customer’s rate of return on $100,000 was negative 0.39% – or minus $451.12 – after investment fees ($786.22) and administration fees ($1,202.83) were taken into account.
AMP executives were only made aware of the customer’s case when the Australian Prudential Regulation Authority (Apra) asked them to look more closely at the performance of the organisation’s cash products.
Michael Hodge, senior counsel assisting the royal commission, asked Allert: “Have you made any inquiries as to why it is that a member invested in 100% cash is paying fees that are greater than the gross return?”
Allert said he had made inquiries, and the board had decided to reduce the customer’s administration fees from 1.2% to 0.5%, which was in the process of happening.
Hodge said: “So that will then mean that the return on [the $100,000 investment] will become marginally positive?”
Allert said: “Yes, in this case it will be marginally positive.”
Hodge said if someone just invested in one of AMP’s interest-bearing accounts you’d get a much higher return. Allert agreed.
Hodge then said: “Why is it that a member who puts their retirement savings with NM Super, and has those retirement savings invested 100% in cash, ends up with a substantially lower return than if they had just invested their retirement savings in an interestbearing account with AMP bank?”
Allert replied: “You’d have to ask the client.”
Hodge: “I’d have to ask who, sorry?” Allert: “The client. Why they’d do that.”
Hodge: “Your point is why are they foolish enough to invest their superannuation with AMP?”
Allert laughed, and said: “That’s not what I’m saying at all.”
Hodge said: “But isn’t that your point?”
Allert replied: “You’d have to ask the client what’s in their mind when they put money into a cash account, and as you’ve pointed out, this person has had a cash account with AMP, at least from 1 March 2014 to 28 February 2018, they’ve left the cash there knowing the return they’re getting.”