Commissioner Kenneth Hayne has questioned whether the trustee overseeing AMP’s various super products can fulfil its obligations to members, given the extent its duties are outsourced to other AMP business entities that can choose what information they pass back to the board.
In a detailed and technical interrogation, counsel assisting Michael Hodge questioned AMP trustee Rachel Sansom about excessive fees, poor fund performance, the misrepresentation of non-cash investments as cash and, predominantly, whether enough information about investment performance made its way back to the trustee.
Nearing the end of the afternoon’s hearings at the Royal Commission into Misconduct in the Banking, Superannuation and Finance Industry, Hodge asked Sansom about two errors in the fees AMP Capital was charging that had led to a combined overcharging of about $26.5 million. One of the errors – which involved about $23 million in fees that should have been rebated to super fund members – was discovered only during the transition to ASIC’s new RG 97 fees and costs disclosure regime last year.
The regulator introduced the industry-wide requirements for fee and cost disclosure in an effort to make it easier for fund members to compare different super products.
Hodge asked Sansom whether it was fair to say AMP’s trustees (technically AMP’s super funds are overseen by two trustees) do not have any visibility over the indirect costs charged to members beyond what they are explicitly told by AMP Life and AMP Super – two business entities to which various functions have been outsourced.
“That would be the case, yes,” Sansom replied.
Hayne then asked Sansom whether the trustee was in a position to fulfil its obligations to members. Sansom said she believed so but her team was working with various parties to “strengthen controls and apply further checks”.
“And how can you do that with a staff of 15?” Hayne asked.
Sansom said AMP’s various outsourcing arrangements required those involved to act in accordance with the trustee’s obligations to members.
Hayne asked whether the trustee was in a position to determine whether those entities were performing those functions as agreed upon, particularly as the information provided was wholly controlled by those entities.
Sansom said it was “not a perfect system” but that information was received from multiple sources so her team was able to do a degree of cross-checking.
Previously, Hodge, in interviewing AMP Super independent chairman Richard Allert, had painted a picture of a hulking network of reporting mechanisms between AMP’s various business entities, in which a range of criteria would trigger “exceptions” and “filters” that would result in underperformance being reported to the trustee.
Hodge put to Allert that, taking the criteria at face value, it appeared an investment had to underperform for up to five years before the trustee was made aware.
Allert did not accept this and said the group investment committee would alert the board to problems outside of the exceptions framework if something was “really bothering” them.
This theme of the trustees’ grasp of what was happening across the funds they were responsible for continued into the questioning of Sansom, during which it emerged the trustee had learned about the fee-for-no-service scandal – which claimed the jobs of AMP’s chair and chief executive earlier this year – through round two of the royal commission.
Confidential internal investigations into the matter were taking place at the time, Sansom said, and she had “no reason to believe” her team would not have been informed upon their conclusion.
In another line of questioning, focusing on the gross underperformance of AMP’s funds, net of fees, compared with its peers, Sansom was asked about the level of control the trustee had over the fee arrangements of its own products.
Sansom said she had tried for a year to get the company’s MySuper fees cut for members and that was only now in the process of happening. The AMP Limited board and the AMP Life company both had to approve the reduction in fees because of the size of the reduction and its impact on group profitability.
Hodge also asked Sansom whether AMP would “continue to describe as cash things that are not cash” – an issue Sansom said the Australian Prudential Regulation Authority had raised “across the industry”.
A product analysis was underway to review that, Sansom said.