AMP has denied that its superannuation funds are permitted to underperform for five years before the investment committee is obliged to inform the relevant fund’s board, the royal commission has heard.
The royal commission has heard told that a consistently underperforming AMP fund could be underperforming for five years before the board of directors becomes notified - a proposition the company denies.
The royal commission hearings into superannuation continued on Thursday, with AMP Superannuation Limited chairman Richard Allert in the witness box.
Mr Allert faced questioning by counsel assisting Michael Hodge about how AMP management and board addresses poorly performing investment funds.
The royal commission was told that ‘quarterly investment management reports’, which contain information about the performance of AMP’s funds in a given quarter, are put together by AMP’s Group Investment Committee.
However, the board of AMP Superannuation does not receive this report. Instead, it goes to AMP trustee services.
Mr Hodge confirmed with Mr Allert that the report would only be raised with the board if trustee services found an issue with the report, or if there was an “exception”.
“Unless an exception was triggered, then you wouldn’t expect this report to be provided to the board?” Mr Hodge asked.
“Correct,” Mr Allert said.
The royal commission heard that such an 'exception' would have three criteria: the first was the ‘identification’ criteria, which meant pinpointing “significant under-performance against peers/benchmarks over rolling 36 month period”.
The second criteria was a period of ‘further investigation’, and the third and final criteria was an exceptions report that was issued “if an investigation remains under investigation … for a period of eight or more quarters”.
“So it would seem as if it would be necessary for an investment to underperform for five years before it would be reported to the board,” Mr Hodge put to Mr Allert.
“No, I couldn’t accept that,” he responded.
After a protest from AMP legal counsel Robert Hollo, who called the question “a little unfair”, royal rommissioner Kenneth Hayne interceded and Mr Hodge rearticulated his question.
“Is it possible for an exceptions report to come to the board about investment performance any earlier than where the underperformance has occurred over a five-year period?”
Mr Allert said it was possible. “If there was something that was really bothering the Group Investment Committee and relaying it to the Trustee Services or was bothering our trustee services representative on the GIC, they would alert the board to that fact.”
But this would occur outside of the exceptions framework, the royal commission was told.
One instance where Mr Allert could recall AMP trustee services raising an issue with the board this year was “in relation to products that had a cash element”.
Hodge went on to establish that several AMP customers who were 100 per cent invested in cash had received a negative net return over several years.
This was made possible because the fund’s administration fee was higher than its return, he established.
Mr Allert said AMP had identified the issue and was in the process of reducing the administration fee for the fund in question to 50 basis points.
AMP is also compensating $5 million to nearly 50,000 affected members, he said.
The hearings conclude today.
You can follow all of the action at the royal commission’s superannuation hearings on InvestorDaily’s live blog.
Equip has secured the $190 million superannuation benefits for more than 1,100 employees of air service provider, dnata. ...
A number of investment managers will adopt fee models that reward investment managers for generating alpha, while others will charge no fees...
APRA has welcomed the Productivity Commission’s final report into the super system despite the commission criticising the regulator’s ro...