Some members of superannuation funds run by AMP ended up paying more in fees than they got in investment returns, the financial services royal commission was told.
Investment fees and administration fees ate up any returns from those super fund members who selected cash as an investment option.
An example was one fund member who ended up with a negative 0.39% return, effectively eating into the capital investment and ending up with less in his account than a year earlier.
That was after an investment fee of $786 and an administration fee of $1202.
Cash is considered to be a safe investment. In times of high volatility or increasing risk, investors might direct an increasing proportion of their funds be allocated to cash.
Rick Allert, a former director of AMP and now chair of AMP’s NM Superannuation, confirmed that the corporate regulator ASIC had contacted AMP in May this year, asking about returns from those members who had selected cash as an investment option.
According to board papers, that set off an internal investigation.
Michael Hodge, senior counsel assisting the commission, asked: “Why are there negative net returns in cash?”
Allert replied: “The reasons can be complex.”
However, Allert told the hearing that fees “absorbed the interest returns” on cash.
Following an investigation, he expected that the administration fees on cash would be reduced to 50 basis points from about 1.2%.
Hodge ask Allert: “So why would someone investing their retirement savings end up with substantially lower returns than if they just invest in an interest bearing account with AMP bank?”
Allert replied: “You’d have to ask the client why they did that.”
Hodge: “Your point is: Why are they foolish enough to invest their superannuation with AMP?”
Allert: “That’s not what I am saying at all. You’d have to ask the client what’s in their mind when they put money into a cash account. This person had a cash money with AMP at least from March 1, 2014, to February 28, 2018. They’ve left the cash there knowing the return they are getting.”
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