3.2 Evidence

3.2.1AMP superannuation funds

ASL and NM have common boards of directors, and the boards operate concurrently.[1]

Between them, ASL and NM are responsible for eight superannuation funds.[2] At August 2018, those funds had approximately $120 billion in funds under management.[3] At the date of the hearings, this was the second largest pool of superannuation funds under management in Australia.

Mr Richard Allert, the Chairman and a nonexecutive director of both ASL and NM,[4] gave evidence to the Commission. The Commission also heard evidence from Ms Rachel Sansom, the Director of Regulatory Governance within the AMP Group. Regulatory Governance was described as the part of the AMP Group that provides trustee services to ASL and NM.[5]

3.2.2Outsourcing arrangements

The trust deed of each AMP superannuation fund permits the trustee (ASL or NM) to delegate any of its powers, duties and discretions to any person.[6]

Both ASL and NM have made arrangements by which they delegate the day-to-day operation and administration of their funds to related parties within the AMP Group.[7]

The arrangements encompass all functions and powers of the relevant trustee, from the collection of funds and the administration of the trusts, to decisions about making investment management agreements.[8]

ASL outsources its functions to AMP Life Limited (AMP Life).[9] AMP Life owns 100% of the shares in ASL.[10] In practical terms, AMP Life operates the two[11] superannuation funds of which ASL is the trustee.

AMP Life provides, among other things, administration services,[12] internal audit services,[13] insurance administration services[14] and investment management services.[15] AMP Life is responsible for preparing product disclosure statements (PDSs) for all of the products offered through the funds of which ASL is the trustee. AMP Life prepares and distributes all new products offered by ASL. It prepares and maintains the product dashboards and other online disclosure material required to be provided by ASL.[16] AMP Life (not ASL) is identified as the entity to be contacted on the PDS.[17] AMP Life prepares any breach reports that ASL submits to the regulator.[18]

AMP Life has outsourced its provision of investment management services to AMP Capital Investors Limited (AMP Capital)[19] and some administration services to AMP Services Limited (AMP Services).[20] Both AMP Capital and AMP Services are companies within the AMP Group.

NM is the trustee of five funds. For three of those funds, NM has outsourced its functions to AMP Life.[21] AMP Life holds 100% of the shares in NM.[22] AMP Life has, again, in turn outsourced the investment management services for these funds to AMP Capital.[23]

For its two other funds, NM has outsourced its functions to NMMT Limited (NMMT).[24] NMMT is another entity within the AMP Group.

The arrangements that have been described are recorded in various agreements between ASL and NM and the relevant AMP entities. But AMP’s submissions proceeded from the premise that the apparent generality of those agreements must be understood in the light of the ‘Fund Governance Charter’ tendered in evidence.[25] The legal character of this document was not explored during the hearings but, in general terms, it describes how ASL and NM are to act as trustees of their respective funds. Its overall tenor is that ASL and NM remain ultimately responsible for the sound and prudent management of their funds, and that the primary role of each is to ensure that there are appropriate governance practices in place for each fund.[26]

The Fund Governance Charter does no more than state what would otherwise be the legal position that is, it adds nothing to the effect of the trustees’ agreements and their obligations under legislation and the general law. Given that all of ASL’s and NM’s outsourcing arrangements are made only with other entities within the AMP Group, the Charter may be taken as recognition, within the AMP Group, that ASL’s and NM’s outsourcing arrangements do not change the position that both are ultimately responsible for their respective funds.

The Fund Governance Charter lists some matters that are reserved to the boards of ASL and NM that cannot be delegated. They include approval of the trustees business plan, approval of amendments to the trust deeds and policies, approval of the trustee’s investment policies and financial statements, and the approval of new financial products to be issued from a fund.[27] But the Charter does not reserve to the boards of ASL or NM decisions about pricing of the products offered by the trustees.

3.2.3Products offered and fees charged to members

ASL and NM each offer, or have offered, within their funds a large number of choice products as noted earlier, these are products in respect of which the member has made a choice as to their superannuation investment. Those products are variously open or closed to new members, or open to new members but restricted to employees of existing corporate plans.[28]

Members of ASL’s and NM’s respective funds are charged various fees.

A member invested in a choice product is charged direct fees against the cash balance in the member’s account. Those fees appear on the member’s statement as contribution fees, member fees and insurance premiums.[29] Choice members are also charged indirect fees, by deduction from the member’s investment return before that return is credited to their account. Those indirect fees include what are described as other fees such as investment fees, administration fees and transaction cost fees (or buysell spread fees)[30] as well as other indirect fees that reduce the return on the investment but are not specifically identified in the member’s statement.[31] Some members are also charged ongoing advice fees.[32]

In addition to the choice products, ASL also offers two MySuper products[33] and NM offers one.[34] Like choice members, MySuper members are also charged direct and indirect costs. The direct costs may appear on the member’s statement as a MySuper member fee and as insurance premiums.[35] Members who hold a MySuper product and a choice product are charged both a MySuper member fee, and a choice member fee.[36]

3.2.4Fees under outsourcing arrangements

In general terms, the related company to which the trustee has outsourced the day-to-day administration of the fund (either AMP Life or NMMT) receives all of the amounts charged to members as fees and retains the balance after expenses. That is, AMP Life and NMMT retain the margins of ASL’s and NM’s superannuation businesses.[37]

AMP Life receives all fees charged to members of the ASL funds in exchange for its administration services.[38] For the financial year ended 30 June 2017, the fees paid to AMP Life across ASL’s (relevant) funds were approximately $253 million.[39]

Similarly, AMP Life collects all of the fees charged to members of the three NM funds of which AMP Life is the administrator,[40] and NMMT collects the fees and charges owed by members of the two funds of which it is administrator.[41]

AMP Life pays fees to ASL and NM in consideration for them acting as trustees of their respective funds.

Under the outsourcing arrangements, AMP Life must pay ASL a ‘Trustee Services Fee in ‘consideration for ASL acting as trustee of ASL’s funds.[42] ASL then pays that fee to AMP Services for providing services to ASL.[43] That fee is paid to AMP Services ‘to cover the costs of providing trustee services and to enable Trustee Services to execute its obligations under the trust deeds’.[44] The same arrangements exist between NM and AMP Life and AMP Services.[45]

For the year ended 31 December 2017, AMP Life paid ASL trustee services fees of $5.878 million, and ASL paid AMP Services fees of $5.331 million.[46] For the year ended 31 December 2017, AMP Life paid NM trustee services fees of $1.187 million,[47] and NM paid AMP Services fees of $1.065 million.[48]

3.2.5Consequences of outsourcing arrangements

What were the consequences of ASL and NM delegating the daytoday administration of their funds to other entities in the AMP Group? How did the trustees monitor what was done? How did they decide whether the members of their respective funds received value for what was paid to the other entities?

It is useful to answer those questions by first describing the general arrangements in place to monitor performance by the related entity and then considering some particular issues that emerged in connection with: performance of cash investments, performance of MySuper products, the trustees’ arrangements in relation to distribution of their products, indirect costs, transition to MySuper, decisions as to pricing of the trustees’ products and termination of the trustees’ outsourcing arrangements.

3.2.6Monitoring of outsourcing arrangements

The formal, and primary, way in which the trustees monitor their outsourcing arrangements is through the Business Monitoring Model (BMM).[49]

Trustee Services

Trustee Services, an administrative and governance function within the AMP Group, is responsible for assisting the trustee boards with the day-to-day monitoring and oversight set out in the BMM.[50]

The BMM approved on 15 March 2018 said that the trustee boards’ successful discharge of their obligations in relation to monitoring and oversight of each Trustee’s business operations [relied] on successful implementation of the BMM by Trustee Services.[51]

Operation of the Business Monitoring Model

The BMM framework has a number of parts: preparation of quarterly reports, stakeholder meetings being meetings between Trustee Services (or Regulatory Governance) and senior staff such as directors or the heads of particular departments or teams within AMP and reporting to the board.[52] More specifically, the BMM has operated as follows.

First, Trustee Services receives quarterly reports from six areas of the trustees’ business operations: finance, product management, risk management and compliance, operations, investment management and insurance.[53]

The reports are designed so that Trustee Services receives reporting from the heads of the relevant business area on that business area’s compliance with the trustees’ legal and regulatory obligations and performance of contractual obligations.[54] Any incidents of noncompliance are identified as exceptions in the report.[55] Exceptions are identified according to an exceptions framework, which contains criteria that are developed by reference to the trustees’ legal and regulatory obligations, the contractual obligations of the trustees’ outsourced service providers and the performance metrics under the outsourcing arrangements.[56]

Second, Trustee Services reviews the reports and meets with the directors or heads of the relevant business area at stakeholder meetings.[57] Any identified exceptions that require escalation to the trustee boards are discussed at those meetings.[58] The BMM does not require all exceptions to be reported to the trustee boards only those that are agreed at the meeting as those that should be brought to their attention.[59] The reports contain the exceptions criteria that identify an exception, and the circumstances in which an exceptions report is prepared.[60]

Third, Trustee Services prepares reports for the trustee boards that, among other things, detail any exceptions that are required to be reported and any other material information that Trustee Services considers should be brought to the attention of the board.[61]

Last, Trustee Services presents the report to the trustee boards.[62] Mr Allert said that, where an exception is identified, the part of the business [responsible for the exception] comes to the board meeting and explains what has happened and what they’re doing about it.[63]

The BMM recognises that the AMP trustee boards need to remain properly informed about the [trustees’] activities and monitor the [trustees’] affairs and policies to ensure that they discharge their trustee and individual director duties.[64] The BMM says that it is important that the reporting structure and exceptions criteria for each business report ensure that this can be achieved.[65]

Exceptions criteria for underperformance

One example of the exceptions criteria relevant to underperformance of the investments of the trustees was put to Mr Allert. These criteria were set out in the quarterly investment management report prepared by the AMP Investment Committee under the BMM in August 2016.[66]

The report explained that the Trustee Exceptions Criteria proceeded by three steps or phases: identification, further investigation of investments identified, and creation of an exceptions list. For underperformance, identification of the investment required [s]ignificant underperformance against peers/benchmarks over [a] rolling 36 month period, and the report said that an exceptions report would be issued where [a]n investment option remains under investigation or on the Exceptions List for a period of 8 or more quarters.[67] That is, on the face of the statement of the Exceptions Criteria, underperformance of a product could continue for five years before it would be reported to the directors of the trustees.

Mr Allert did not accept that this was the position he said that if there was something that was really bothering the Group Investment Committee [of AMP] or was bothering our trustee services representative on the [Group Investment Committee], they would alert the board to that fact.[68] And an exception report could be issued for [a]ny matter’ regarding investment reporting that Trustee Services thought ‘should be brought to the attention of the Boards.[69]

But the relevant question, not answered by what Mr Allert said about how other elements within AMP might respond, was whether the trustees were in a position to know whether they in fact should be ‘really bothered’ by what was happening. On the face of the exceptions reporting framework, the board would not be informed of the matter until there had been five years of significant underperformance.

3.2.7Performance of cash investments

Evidence

In May 2018, Trustee Services reported an issue to NM’s board outside the BMM reporting framework.[70] Trustee Services told the board that members in the Super Directions Cash Management Trust investment option (a product offered through one of NM’s funds, the Super Directions Fund [SDF]) had received negative net returns over a three year period.[71]

On 1 March 2018, APRA had requested information from NM about its Super Directions Cash Management Trust investment option, as part of its targeted review of cash options to assess whether trustees were complying with the reasonable expectations principles in Prudential Standard SPS 530: Investment Governance with respect to cash investment options.[72] AMP discovered the negative net returns for members invested in cash when it was preparing its response to APRA’s targeted review.[73]

Member statements of members invested 90% or more in cash through the Super Directions Cash Management Trust were tendered in evidence. One statement showed that, as at 28 February 2015, a member, born in May 1960 and invested 100% in cash, received a net rate of return of 0.47%, amounting to $381.59 after total fees of $1,723.47 were deducted from the return.[74] A further statement for that member showed that as at 28 February 2018, the member had an account balance of $105,304.69 and after investment fees and administration fees were deducted, ended the period with an account balance reduced by $451.12 a net return of
-0.39%.[75]

Mr Allert accepted that the member had received a negative net return.[76] Mr Allert also accepted that a member invested in an interest bearing account with AMP Bank would have received a higher return than they would through this cash investment.[77] When asked why a member who invests their retirement savings 100% in cash with NM achieved a substantially lower return than they would had they invested their retirement savings in an interest bearing account with AMP Bank, Mr Allert’s response was that [y]ou would have to ask the client why they would do that; [t]hey left the cash there knowing the return [they were] getting.[78] That is, the Chair of the board of the trustees treated charging the member for retaining the member’s account wholly in cash (which was the effect of providing a negative return) as a matter wholly for the member and not a matter of concern to the trustee.

A statement from a different member, born in October 1948, showed that the member received net investment earnings of $3.23, or an investment return of 0.02%, for the year ending 30 June 2016.[79] This member had a financial adviser, and had adviser service fees (ASFs) automatically deducted from their account each month.[80] Because the AMP trustees do not monitor the provision of services by the adviser to the member, the trustee could not say what services the adviser had provided.[81] It is enough to observe that, whatever the services were, they did not yield any immediate real return to the member for this aspect of the member’s investments.

AMP submitted that the issue of negative net returns affected a minority of the cash options offered by the AMP trustees, and was restricted to some cash options within two of NM’s funds.[82] But observing that the issue was confined does not mean it is unimportant to those affected or unimportant when considering the trustee’s performance of duties.

In any event, the issue was not as confined as AMP had sought to characterise it. At the meeting of the trustees’ boards on 25 July 2018, the boards were told that nine products across two of NM’s funds had instances of negative net returns.[83] In total, approximately 12,000 current members, with $43,367,658 funds under management, were affected, and a total amount of approximately $5 million was to be paid as remediation.[84] Over the relevant period, the total number of members affected (both existing and exited members) was estimated to be 47,000.[85] Ms Sansom said that she thought that the current members were to be remediated by reducing the administration fee ‘across all cash options’ applied retrospectively for three years.[86]

NM notified APRA and ASIC on 15 May 2018 that it had breached section 52(2)(b) of the SIS Act and section 912A(1)(a) of the Corporations Act by generating negative net returns to members invested in cash through the Super Directions Cash Management Trust investment option over the previous three years.[87] As noted above, NM said in that breach report that it had identified the negative net returns while preparing its response to a request for information made by APRA on 1 March 2018 as part of APRA’s targeted review of cash options.[88]

Since reporting the breach in relation to cash investments, NM has lowered the administration fees on products affected by the negative returns to 0.5% per annum for open products, reducing the fee from as high as 1.72% per annum, and to 0.7% per annum for mature products, reducing the fee from as high as 2.70% per annum.[89] Why fees had been set at the rates they were for investment in cash or cash equivalents is not immediately apparent. At least on the face of it, investment in cash or cash equivalents, when interest rates are as low and as steady as they have been in recent years, seems unlikely to need as much skill and work as some other forms of investment.

The evidence demonstrated that the poor performance of the Super Directions Cash Management Trust investment option went unnoticed by NM due to a gap in reporting on investments to the trustees that was that the reporting reflected an investment management view of performance of the investment, rather than performance of the investment from the member’s perspective, net fees and costs.[90] This was explained in a report to the trustee boards in June 2018, which said ‘the SDF Cash breach highlighted the broader monitoring gap that performance of the SDF cash option was not reviewed on a net return to member basis (after application of all investment, AMP product/platform and administration fees)’ and the Group Investment Committee said that enhanced oversight of performance after product fees would be required’.[91] I deal with the adequacy of the reporting on investment performance to the trustees below. It is enough to note at this point that AMP identified a ‘gap’ in reporting that required remedying, and a result of that gap caused NM to significantly reduce the administration fees charged to members and to lodge a breach notification with APRA and ASIC.

One other aspect of investment in cash or cash equivalents was briefly examined in evidence. It focused on the elasticity of the notion of ‘cash equivalents’. Ms Sansom said in her witness statement that AMP Cash Plus and AMP Secure Cash, products of an ASL fund, were investments that comprised Cash/Cash Equivalent with Other Guarantee, and for which the lowest credit rating was BBB+.[92] Ms Sansom also said that AMP Capital Wholesale Cash Management Trust, which comprised Cash/Cash Equivalent, had a lowest credit rating of BBB-.[93] Ms Sansom explained in her statement that Cash/Cash Equivalent investment options will have exposures to cash/cash-like investments and may also hold other fixed interests securities (eg mortgage-backed securities and corporate debt) and that Cash/Cash Equivalents and Other with Guarantee comprised the same investments, but also had a guarantee.[94]

Credit ratings of BBB+ and BBB- point to a level of credit risk not associated with investing in cash. They are ratings that suggest to me that the investment is not being made in cash or an instrument or asset properly described as the equivalent of cash. They are investments of a kind that may not readily be reflected by product names such as ‘Cash Plus’ or ‘Secure Cash’.

When Ms Sansom was asked if she knew whether any decision had been made by AMP about whether it would continue to describe as cash things that are not cash, her evidence was that she believed there is analysis and a project underway at the moment to review that, which analysis was being undertaken by AMP Capital.[95]

It should go without saying that expressions like ‘cash equivalents’ might be used in ways that are likely to mislead or deceive. I do not say that AMP has done this. But the use of expressions such as ‘cash’ and ‘cash equivalents’ is a matter to which ASIC should consider giving close attention.

What this part of the case study showed

The 15 May 2018 breach report, in which NM notified APRA and ASIC that it had breached section 912A(1)(a) of the Corporations Act and section 52(2)(b) of the SIS Act, recorded that members in Super Directions products had received negative net returns over the preceding three years.[96] The report said that APRA’s targeted review of cash options had ‘highlighted that the current monitoring processes and framework did not provide the Trustee with an adequate level of information to effectively monitor performance of the investment options at a net of fees and taxes level’.[97]

In its submissions AMP accepted that NM had breached section 912A(1)(a) of the Corporations Act and section 52(2)(b) of the SIS Act in relation to its monitoring of the performance of the cash investment options offered by NM.[98] I see no reason to doubt that this is so. It follows, of course, that NM’s conduct amounted to misconduct as defined in the Commission’s Terms of Reference.

Counsel Assisting submitted that it was open to me to find that NM’s conduct might amount to other forms of misconduct in particular, that NM may have breached its duty under section 52(6) of the SIS Act and obligations under SPS 530. AMP disagreed.[99]

Trustees have particular obligations under the SIS Act and Prudential Standards[100] with respect to investments. Section 52(6)(a) of the SIS Act requires trustees, among other things, to regularly review an investment strategy for each investment option offered by the trustee, having regard to the likely return from the investments,[101] and any other relevant matters.[102] Section 52(6)(b) requires trustees to exercise due diligence in developing, offering and reviewing regularly each investment option. As noted above, the breach report identified deficiencies in providing the trustee with ‘an adequate level of information to effectively monitor performance of the investment options at a net of fee and taxes level’.[103]

SPS 530 requires the board of an RSE licensee[104] to monitor and assess regularly whether the investment objectives are being met,[105] and to have an investment governance framework[106] to manage investments so that they meet the RSE licensee’s obligations to beneficiaries.[107] SPS 530 also requires an RSE licensee to determine appropriate measures, approved by the board, to monitor the performance of each investment in each investment option, and each MySuper product, on an ongoing basis.[108]

AMP submitted that it was not open to me to find that NM may have breached section 52(6) of the SIS Act or SPS 530 in generating a negative return on cash investments.[109] AMP submitted that there was no evidence that the AMP trustees failed to formulate, review regularly and give effect to an appropriate investment strategy for their funds.[110]

I am unpersuaded by AMP’s submissions for the following reasons.

First, as has been noted above, NM’s report identified that the monitoring processes and framework of NM did not provide it with an adequate level of information to effectively monitor performance of the investment options at a net of fee and taxes level.[111] It said that reporting and monitoring at the member level at a net of fees and taxes position was not being performed.[112] Mr Allert[113] and Ms Sansom[114] reiterated this in their evidence. So did AMP in its submissions.[115]

Second, the breach report proposed that, as part of the rectification of the incident, more appropriate reporting and processes in respect of all investment options available to all members will be established to ensure that the requirements of SPS 530 will be met going forward.[116] This was consistent with information considered by the board on 14 May 2018,[117] and the change to the reporting was confirmed by Mr Allert in his evidence.[118]

Third, AMP’s submission directs attention to the investment strategy of the fund as a whole. But section 52(6)(a) expressly distinguishes between the investment strategy ‘for the whole of the entity’ and the investment strategy ‘for each investment option offered by the trustee in the entity’ and section 52(6)(b) expressly requires regular review of ‘each investment option’.

SPS 530 complements the obligation in section 52(6) by requiring measures to be established for ongoing monitoring of the performance of the investment.

Contrary to AMP’s submissions, I consider that NM may have breached its obligations under section 52(6)(a) and (b) and SPS 530. The matter having already been reported to the regulators, it is a matter for them to decide what, if any, further action should be taken.

3.2.8Performance of MySuper products

Evidence

NM’s decision to reduce the administration fees in respect of its cash investments was not prompted solely by the negative net returns on cash investments. The decision was also a result of APRA identifying in October 2017 that MySuper products offered by ASL and NM had high costs per member relative to other MySuper products, as well as continued net cash outflows.[119]

On 25 July 2018, the administration fees of the AMP trustees’ generic MySuper products[120] were halved to 0.29%.[121] In its submission AMP described these reductions as very significant.[122] A memorandum considered by the AMP trustee boards on 25 July 2018 said that the proposed changes would move the pricing from Quartile 4 to Quartile 3, and that the proposed pricing change [would] deliver an immediate and ongoing improvement in outcomes for ~700k members, with the price reductions being borne by the AMP Shareholder in the form of reduced revenue from fees.[123]

The fee reductions in July 2018 were the first time that changes had been made to the pricing of the AMP trustees’ MySuper products since they were initially approved by APRA in 2013.[124] However, Ms Sansom said that she had held the view for [q]uite some time that fees should be reduced.[125] Ms Sansom said that she had advocated for the change to pricing throughout 2017, but that any change in fees was dependent on the AMP Product Team’s view.[126]

Ms Sansom had noticed poor performance in the AMP trustees’ MySuper products in September 2016, and the issue was raised then with the AMP trustee boards.[127] At that time, two of the AMP trustees’ MySuper products were reported in a news article as being the second and third poorest performing products for the 2016 financial year.[128]

The same gap in reporting of investment performance identified above (in connection with the negative net returns on cash investments) was identified by AMP Investment Regulatory Governance in April 2017 in respect of reporting of investment performance of the AMP trustees’ MySuper products.[129]

This was recorded in a memorandum prepared by AMP Investment Regulatory Governance for Trustee Services (along with Superannuation Retirement and Investment Platforms, Corporate Super, and AMP Capital) dated 3 April 2017.[130] The memorandum contrasted APRA’s reporting methodology, which focuse[d] on the net member experience by incorporating all fees and taxes that apply, with AMP Capital’s reporting, which reported performance on a gross basis (before fees and taxes).[131] The memorandum said that, given the gross investment performance lens ignores the impact of fees, costs and taxes, the investment updates have not addressed the net member experience aspect of MySuper performance.[132] The memorandum ranked the AMP trustees’ products in comparison to those of their competitors, recording that, for example, one product ranked 26 out of 29 for administration fees and costs and 23 out of 29 for net returns to members, and another ranked 59 out of 63 on administration fees and costs and 49 out of 63 for net returns to members.[133]

Neither Ms Sansom, nor anyone else, reported the results of the April 2017 memorandum to the AMP trustee boards.[134] There was no evidence that any changes were made to investment performance reporting to the AMP trustee boards at this time.

The third and fourth annual MySuper scale assessments, performed in November 2016 and November 2017 respectively, identified that the AMP trustees’ generic MySuper products were below median or in the bottom quartile when fees were considered.[135]

What this part of the case study showed

Section 29VN(a) of the SIS Act obliges the trustee of a regulated superannuation fund that includes a MySuper product to promote the financial interests of the beneficiaries of the fund who hold the MySuper product, in particular the returns to those beneficiaries (after the deduction of fees, cost and taxes).

The Explanatory Memorandum to the Bill for the Act that inserted section 29VN said that the requirement to promote the financial interests of MySuper members:[136]

heightens the obligations trustees owe to members of a MySuper product reflecting that members of a MySuper product have effectively delegated the responsibility for making decisions regarding their superannuation to the trustee. This requires a trustee to make informed judgments regarding the MySuper product, for example in relation to the composition of assets in the investment strategy, so that it secures the best financial outcome for these beneficiaries.

The Memorandum expected that section 29VN would lift the standard required of trustees.[137]

Counsel Assisting submitted that it was open to me to find that ASL and NM may each have breached section 29VN(a) to promote the financial interests of their MySuper members. AMP submitted that such a finding was not open. AMP said that the evidence showed that the AMP trustees have consistently advocated for the financial interests of the MySuper members, including to improve the outcomes of members in the generic MySuper products by securing a significant reduction in fees.[138]

There are two problems with AMP’s submission.

First, the evidence did not support AMP’s submission. There was no evidence that, before the MySuper fees were reduced in July 2018, the boards of either ASL or NM had ever advocated for the financial interests of MySuper members.[139] The highest that AMP’s evidence rose was Ms Sansom’s. She said that she had held the view that fees were too high and that she had advocated since 2017 for lower fees but that lowering the fees was ultimately a matter for the AMP Product Team.[140]

AMP relied on the July 2018 reduction in fees as supporting its position. That reduction was made after APRA had identified, in October 2017, the high costs to members of AMP superannuation funds who held MySuper products. And the reduction pertained to the reduction in fees brought about by the negative net returns over a three year period to members who were invested in NM’s Super Directions Cash Management Trust cash investment option.

The third and fourth annual MySuper scale assessments, performed in 2016 and 2017 to satisfy the trustees’ obligations under section 29VN(b) of the SIS Act, had identified that ASL’s and NM’s MySuper products were below median or in the bottom quartile of fund performance when fees were taken into account.[141] There is no evidence that any step was taken by the AMP trustees at or around those times to inquire into, or to address, the effect of fees on net performance.

No step was taken by the AMP trustees to address the effect of fees on performance until, following the identification of the negative net returns on cash investments, Trustee Services brought to the boards’ attention, in May 2018, the gap in reporting that underpinned the later breach reports to APRA and ASIC.[142] As I noted earlier, the trustees identified this issue because they were prompted by APRA and the work required by APRA’s targeted review.

The second problem with AMP’s submission is that it reduces to meaningless the obligation imposed upon the AMP trustees by section 29VN(a) to promote the financial interests of the MySuper members. On AMP’s approach, the AMP trustees satisfied their obligations by Ms Sansom advocating for reduced fees in 2017. But, as Ms Sansom acknowledged, changes to fees were out of her (and the trustees’) hands. Any changes were a matter for AMP’s Product team. It was only in July 2018, in response to APRA’s enquiries and in the midst of this Royal Commission, that fees were lowered to competitive levels. Yet AMP says that the response was sufficient for the AMP trustees to have discharged their duties. That cannot be correct. If anything, the lowering of fees in the circumstances described points to the trustees having failed, until then, to promote the financial interests of its members in satisfaction of section 29VN(a).

Ms Sansom said that the reporting to the AMP trustees about the net member experience through the MySuper scale assessments is currently being strengthened.[143] AMP submitted that Trustee Services and the Group Investment Committee are working with the Product Management team to establish investment reporting to the AMP trustees that is net of fees and taxes.[144] If this is right, and I have no reason to doubt it, it follows that at the time the Commission took evidence about these matters, and at the time of AMP’s submissions to the Commission in August 2018, investment performance reporting to the AMP trustees still did not sufficiently report investment performance net of fees and taxes.

It follows that since at least the third MySuper scale determination performed in 2016, ASL and NM may not have complied with section 29VN(a). And failing to comply with that obligation would evidently be misconduct. Under section 29VP of the SIS Act, contravention of section 29VN, though prohibited by section 29VP(1), is not an offence[145] but persons who suffer loss or damage as a result of the contravention may recover that loss or damage from the contravener and from any person involved in the contravention.[146]

3.2.9Distribution of trustees’ products

Evidence

The BMM approved on 15 March 2018 stated that [n]o standalone BMM is required from any Advice/Distribution area as financial planners do not directly undertake activities on behalf of the AMP trustees.[147] The BMM also said that, given the nature of the services that advisers provide to members as well as the importance of effective distribution of the [AMP trustees’] products, the AMP trustees were to receive reporting about advice and distribution through Product and Risk and Compliance reports.[148]

Ms Sansom said that, because of the trustees’ outsourcing arrangements, effective distribution of superannuation products is a responsibility of AMP Life: the AMP trustees rely on the terms of their outsourcing arrangements and the measures in place within AMP to oversee distribution.[149]

APRA undertook a review of the BMM in March 2017.[150] APRA identified as part of that review that the BMM does not provide the AMP trustees with visibility of the advisers who direct members to invest in their superannuation products or [advise] whether the strategies for members are appropriate.[151] Ms Sansom’s evidence was that, in response to that review, the AMP Advice licensees ensured that AMP Enterprise Risk Management (ERM) distribution reports, and risk reporting by AMP Advice, would be made available to Trustee Services, and that commentary related to distribution risk would be included in ERM’s regular BMM reporting to Trustee Services.[152]

APRA considered the issue of the trustees visibility over distribution closed on 30 January 2018.[153] However, Ms Sansom’s evidence was that the AMP trustees considered that further improvements could be made.[154] A review of the BMM completed in June 2018 showed that there was a need for more direct oversight of advice related activities.[155] AMP acknowledged in its submissions that the AMP trustees’ monitoring through the BMM of distribution of their products through financial advisers was being, and had recently been, strengthened.[156]

In particular, as noted above, Trustee Services now receives risk reporting about the AMP Advice business through the BMM.[157] Further, in May 2018, the trustee boards requested that a senior executive in AMP Advice provide them with direct reporting, and the reporting model for this is being developed.[158] The trustees also requested more oversight through the BMM of open incidents and reported breaches.[159]

The timing of these requests should be noted. They followed evidence heard in the second round of the Commission’s hearings.[160] During those hearings, the Commission heard evidence that the conduct within the AMP Advice business of charging ongoing service fees to members in circumstances where those services could not be provided appeared, to at least some extent, to have been intentional.

ASL and NM had not been aware of, or told by AMP about, any intentional aspect of the conduct until they heard AMP’s evidence during the Round 2 hearings.[161] Until then, the AMP trustees had been aware of the conduct to the extent that ASIC and APRA had been told it was due to an administration error.[162] The AMP trustees were named as the AMP Product Issuers on the breach notification given to APRA and ASIC on 27 May 2015.[163]

On 8 June 2018, in response to the trustee boards’ request in May 2018, ASL and NM were provided with information about the current open incidents recorded in the incident management system that affected the trustees.[164] One of those incidents was the charging of planner servicing fees where they should not have been charged.[165] This incident was discovered within the AMP Advice business on 26 July 2017, and at that time it was thought to have affected 553 members with total fees of $76,113.50.[166] The Advice Breach Committee did not determine the incident to be a reportable breach.[167] This incident would not have otherwise been brought to the attention of the trustee boards as it did not qualify as an exception under the BMM to do so, the compensation would have had to have exceeded $100,000.[168] The information provided to the trustee boards in June 2018 indicates that, as at 17 May 2018, the incident had not been resolved, nor had the number of members affected been ascertained.[169]

Separate from, but similar to, this incident, ASL notified APRA and ASIC on 26 June 2018 that it had breached sections 912A(1)(a) and 1017D of the Corporations Act by continuing to charge PSFs in circumstances where they should not have been charged.[170] ASL provided an estimate that approximately 6,300 members were affected with an initial financial impact of approximately $1 million.[171]

What this part of the case study showed

The ASL and NM Boards have had little reporting and monitoring through the BMM about issues with the distribution of their products. That is because, as Ms Sansom said, AMP Life is responsible for the distribution of the trustees’ products, and the trustees rely on their outsourcing arrangements and the measures within AMP to oversee distribution.[172]

However, following the second round of the Commission’s hearings, the trustee boards requested that they be provided with a list of the open incidents within AMP that affected the trustees.[173] The list provided to the trustees, at their June 2018 board meeting, revealed that there were many open incidents that had not been reported as an exception to the boards including, in some cases, where the incident had been reported to the regulator. Presumably it was possible for an incident to be reported to the regulator without it also being reported to the trustees because under the outsourcing arrangements, AMP Life prepares breach reports to the regulator.[174]

An example provided in the list at the June 2018 meeting, which had not been reported to the trustees through the BMM, was an open incident where MySuper members had been charged PSFs after 1 January 2014 contrary to legislative requirements.[175] AMP Advice attributed this to a systems error in that the appropriate systems did not correctly reflect the rules following FoFA changes as at 1 July 2014.[176] AMP Advice identified in July 2017 that this incident affected approximately 553 members with total fees charged of $76,113.[177] AMP Advice considered that this incident was a breach, but not a significant or reportable breach, based on the circumstances including the number of affected members.[178] However, by the time the trustees were given information about this incident, based on information as at May 2018, the number of customers affected by this incident was still TBC.[179]

This incident was similar to a separate incident that was reported to APRA and ASIC on 26 June 2018 ASL told the regulators that it had breached sections 912A(1)(a) and 1017D of the Corporations Act by continuing to charge PSFs to employees who had delinked from their employer plan post-1 January 2014.[180] But just like the incident described above, those members were being charged PSFs contrary to legislative requirements. AMP also attributed the incident to a systems issue it said in the breach report that the product administration system has continued to charge the [fee] to delinked members contrary to product rules set in place in June 2014.[181] The breach report estimated about 6,300 AMP Flexible Super members were affected, and that the amount involved was $1 million. [182] This incident had not been reported to the trustees through the BMM by the time the breach report was made.

These incidents show three ways in which the trustees’ visibility and monitoring of distribution of their products was inadequate.

First, even at May 2018, the level of reporting that the trustees received through the BMM did not capture all incidents in which members were being charged fees incorrectly and contrary to the law.

Second, the two incidents were both cases where AMP Advice charged or allowed the charging of fees to the trustees’ members in circumstances where they should not have been charged. Yet the trustees were not aware of this and apparently had no way of monitoring the charging of fees to members.

Third, the trustees only asked to be provided with information about the open incidents after the evidence given at to the Commission in April 2018. This is so even though APRA identified as early as April 2017 that the trustees did not have adequate oversight of distribution of their products.[183]

The trustees accepted there were opportunities for enhancement of their oversight of distribution of their products and said that they were taking steps to do so.[184] I agree that the trustee boards do not have a level of oversight over distribution of their products that would be reasonably expected of trustees with the number of members and funds under management as the AMP trustees. But this is not a recent revelation to the trustee boards. APRA alerted them to the danger last year but they had not recognised it themselves and did not move swiftly to address it.

3.2.10 Performance of investments and indirect costs

Evidence

AMP trustees do not know the indirect costs charged to members beyond what they are told by AMP Life or AMP Capital.[185] Ms Sansom said that the level of monitoring [done by Trustee Services] would not pick up those costs.[186]

Two recent incidents highlighted the trustees’ lack of knowledge of the indirect fees charged to members.

AMP referred to the first incident as the Expense Recovery Incident. It happened because AMP Capital recovered expenses, such as fund services expenses, at a fund level and charged fees on a pro-rata basis, rather than recovering fees from the relevant members’ investment options.[187] AMP Capital had been recovering these expenses pursuant to an expense recovery project, clarifying which expenses it was permitted charge under the terms of the relevant agreements with AMP Life.[188]

Ms Sansom said that the expense recovery project was not intended to affect other AMP Group entities, and so there was no report to the AMP trustees in respect of it.[189] This is so even though the Expense Recovery Incident ultimately affected 31 of the trustees’ products (being products offered through one fund of NM, and each of the funds of ASL).[190] Nor was any report made about the project to the board of AMP Capital or any other AMP Group entity.[191]

The second incident was referred to by AMP as the Fee Rebate Incident. It happened because AMP Capital charged its investment management fee in respect of external direct property and infrastructure funds in circumstances where the fees should have been rebated to the member.[192]

The trustees’ members were among those affected by the incorrect fees charged by AMP Capital in respect of both the Expensive Recovery Incident and the Fee Rebate Incident.[193] Ms Sansom estimated that the value of the fees incorrectly deducted for the Expensive Recovery Incident is approximately $1 per member, and an aggregate amount of $3 million to $3.5 million.[194] For the Fee Rebate Incident, Ms Sansom estimated that the value of the fees incorrectly charged is approximately $6 to $8 per member, with approximately 3 million to 4 million members affected, and an aggregate amount of more than $23 million provisioned for remediation.[195] The amounts to be remediated include the amount wrongly charged plus the impact on performance.[196]

The Expense Recovery Incident could be traced back to 2014.[197] AMP Capital became aware of the Incident in August 2017 and reported it to ASIC[198] at that time, AMP Capital had understood that it did not affect superannuation members.[199] It was not clear when the issue was subsequently identified by AMP Capital as extending to superannuation products.[200] The Fee Rebate Incident likely existed since fund inception or when the funds held direct property or infrastructure funds for the first time, which was estimated to be between four and at least 10 years, depending on the fund.[201] AMP Capital reported the Fee Rebate Incident to ASIC as a potentially significant breach on 22 March 2018.[202]

The two incidents were revealed to ASL and NM only because of analysis done so that they could comply with ASIC’s new Regulatory Guide 97. ASL and NM were required by the new Regulatory Guide to disclose those fees, which had previously been undisclosed, charged to the return on the investment.[203]

What this part of the case study showed

Where a trustee engages an investment manager to manage the investments of the fund, section 102(1) of the SIS Act obliges the trustee, among other things, to have in place an agreement that enables the trustee to require the investment manager to provide information wherever it is necessary or desirable to do so.[204] Such information may include that related to the making of, and return on, the investments.[205]

The directors of the AMP trustees use a directors’ roadmap to assist them to monitor their obligations, including their obligations under the SIS Act.[206] The roadmap says that the duty imposed under section 102 does not apply, as the AMP trustees do not directly engage Investment Managers.[207] This is because AMP Life has engaged AMP Capital to provide investment management services on behalf of the AMP trustees.

Counsel Assisting submitted that, by entering into the outsourcing arrangements, the trustees owed no duties to their members under section 102(1) of the SIS Act to seek information in accordance with that section from AMP Capital.

AMP submitted that the trustees’ outsourcing arrangements are in full compliance with [section] 102(1) the agreement with AMP Life requires it to comply with this obligation.[208] It is not clear what AMP means by this. The obligation in section 102(1) is on the trustee.

In any case, AMP did not identify the agreement, or the provision within that agreement, upon which it relies in making this assertion of compliance. Neither of the trustees’ agreements with AMP Life (the Master Outsourcing Agreement[209] for ASL, and the Administration Deed[210] for NM) refer to section 102(1) of the SIS Act. Nor do they impose obligations identical to those that would lie under section 102(1) on a trustee that has directly engaged an investment manager, though the agreements with AMP Life do impose a general obligation on AMP Life to monitor the performance of each investment on an ongoing basis.

As I have explained, the trustees’ directors’ roadmap said only that the obligations under section 102(1) are not applicable it did not say that AMP Life has been required to cause the trustees to comply with the obligation imposed by section 102(1). The point made by the directors’ roadmap is that because the trustees do not directly hold the contracts with investment managers, they have no obligations under section 102(1). That is correct. I do not accept the submission that AMP made to the contrary.

AMP also said that information is sought from the investment manager whenever the Group Investment Committee, to which investment performance monitoring had been delegated, thought it necessary or desirable to seek information.[211] The only reference given by AMP to support this submission was to the Terms of Reference for the AMP Group Investment Committee. AMP did not point to a specific obligation in the Terms of Reference. AMP did not identify any evidence of the Group Investment Committee requesting information to assist the trustees or AMP Life to discharge their investment-related obligations.

The weakness in the trustees’ monitoring of performance is demonstrated by the Expense Recovery Incident and the Fee Rebate Incident. As a result of these incidents, AMP is paying customers approximately $26.5 million in fees incorrectly charged or withheld by AMP Capital.[212] The customers who are being compensated include members of ASL’s and NM’s funds and include some of their MySuper members.[213]

The conduct referred to as the Expense Recovery Incident occurred over about three years from 2014; the conduct referred to as the Fee Rebate Incident may have occurred over as many as 10 years. This overcharging of fees was not discovered by AMP Life monitoring the performance of investments in accordance with its agreements with the trustees. Whatever information was being provided by AMP Capital to AMP Life (or the Group Investment Committee), it was apparently insufficient to show that fees were being incorrectly charged to members.

Nor was the overcharging of fees discovered by the Group Investment Committee requesting information to assist AMP Life or the trustees to discharge their respective investment-related obligations. There was no evidence of the Group Investment Committee requesting, on behalf of AMP Life, information with a level of detail that would enable it to identify the incorrect charging of fees (and therefore the reduction in net returns).

The overcharging of fees was only revealed to ASL and NM because the new version of Regulatory Guide 97 required the trustees to disclose indirect costs of investments and so those costs needed to be identified.[214]

The evident purpose of the Regulatory Guide was to require trustees to make disclosure so that consumers could be informed of the costs of investment. It says little for the merits of AMP’s outsourcing arrangements that in order to comply with the guide it was first necessary to inform the Group Investment Committee, AMP Life, ASL and NM about these costs.

3.2.11 Transition to MySuper

Evidence

The transition plan prepared for moving members’ accrued default amounts (ADAs) into a MySuper product was not designed by the AMP trustees, but by a specialpurpose team within AMP known as the FoFA and Stronger Super program.[215] Ms Sansom said that it was not unusual for a special purpose team to be set up for such a large program.[216]

The transition plan for one of ASL’s funds showed that the transfer of members’ ADAs to MySuper products was done in tranches.[217] All tranches were to be completed by 30 June 2017.[218] That was the last day by which trustees had to attribute ADAs to MySuper products.[219] AMP Life, as administrator of the fund, was responsible for ensuring that each tranche of transfers occurred at the determined time.[220]

From the trustees’ perspectives, the timing of the transitions was designed to manage the operational risk of the transitions.[221] An update given to the trustees in March 2015 regarding the transitions said that the ADA transitions have been spread over a few years due to the large volume required to be transferred (over $10bn in assets) and complexity involved in asset movements of this size.[222] That update did not record any commercial considerations that affected others in, or aligned with, the AMP Group.[223]

Since commencing in her role in 2015, Ms Sansom could not recall anyone discussing with her or the trustees any assessment AMP had made about the effect the timing of the ADA transfers may have on revenue.[224]

There were documents in evidence before the Commission, however, that did consider the effect of the timing of the ADA transfers on the AMP Group’s profits.

A pricing paper prepared by actuaries for the consideration of AMP’s Product and Insurance Risk Committee (PIRC), at a meeting on 29 May 2013 (PIRC Pricing Paper), set out a proposed schedule for the timing of transfer of ADAs to MySuper products.[225] One section of the PIRC Pricing Paper dealing with Risks and sensitivities considered how profits would be affected by the transfer patterns of the ADAs. It said that there would be a $3 million or 0.2% reduction of inforce profits if a higher proportion of ADAs were to be transferred in 2017, whereas there would be a $86.5 million or 7.5% reduction of inforce profits if 100% of ADAs were to be transferred in 2014.[226]

The PIRC Pricing Paper also considered the effect that MySuper would have on distribution. It said that PwC had been engaged to build an economic model and planner heat maps to identify planners affected by the introduction of MySuper.[227] The financial planners or advisers who were affected by the transition to MySuper products were referred to as being MySuper exposed, in that the advisers would have been receiving revenue from clients’ ADAs and would lose that revenue if those clients were transferred to a MySuper product.[228] The modelling to be done by PwC would, among other things, allow AMP to build comprehensive value propositions for the financial planners, employers and members to help minimise impacts on AMP’s net cash flow and operating earnings arising from the introduction of MySuper products.[229]

The PIRC Pricing Paper recommended that PIRC endorse the proposal set out in the paper for the subsequent approval by the CEO and Managing Director of AMP Limited, and the Managing Director of AMP Financial Services under delegation from the boards of AMP Life and National Mutual Life Association of Australasia Limited (NMLA).[230]

Heat maps prepared by PwC identified that 11 practices had greater than $400,000 in corporate super revenues, with over 50% of that revenue predicted to be MySuper exposed,[231] and said that [s]everal of the decisions regarding MySuper, such as [buyer of last resort] and timing of ADA transition, may be informed through leveraging the heatmap data and complementing it with further qualitative and quantitative research to test solutions.[232]

The PwC heat maps also set out headline calculations of revenue, listing the gross margin summary for each product based on the size of revenue exposed to MySuper.[233] The two highest gross margin exposures were for the products Flexible Lifetime Super and CustomSuper.[234]

The majority of members in Flexible Lifetime Super and CustomSuper were not transferred to MySuper until April 2017.[235] That was only about two months before the date by which the trustees were required to transfer ADAs to MySuper products (30 June 2017).[236]

There was no evidence that either the PIRC Pricing Paper or the PwC heat maps were provided to the AMP trustees. Indeed, Ms Sansom’s evidence was that the PIRC Pricing Paper was not a document that she would typically see within the office of the trustee, or that would typically be provided to the AMP trustees.[237] It contained information that Ms Sansom would not generally expect to be provided or communicated to the AMP trustees.[238] Ms Sansom did not recall reading any documents detailing any discussion with the trustee about adviser revenue streams being exposed to MySuper.[239] And Ms Sansom did not know whether the PwC heat map analysis was used to guide the MySuper transition process.[240]

The same information given to the AMP trustees about the complexities of the transfers affecting the timing of the transfers was also communicated to APRA.[241] The information provided to the AMP trustees was also consistent with information provided to ASIC.[242]

Ms Sansom believed that, if the MySuper transition program was happening today, the current trustee boards would ask questions about profit.[243]

What this part of the case study showed

AMP submitted that it was entirely unexceptional that other entities within the AMP Group analysed and modelled the effect the proposed timing of the transfer of ADAs would have on them and developed plans to mitigate any adverse effects.[244]

The other entities that AMP refers to are AMP Life and PIRC they were the entities responsible for developing the transition plans for the transfer of the ADAs. AMP Life was also one of the entities that was contractually obliged to act in the AMP trustees’ members’ best interests in performing the AMP trustees’ powers, duties and discretions.

The ADA timing was ultimately determined by AMP Life as the entity responsible for the transitions.[245] The determination of timing involved a potential conflict between the interests of members and the interests of the AMP advice business. PIRC or AMP Life were acting on information in the PIRC Pricing Paper, or the PwC heat maps, which was relevant to mitigating adverse effects on the advice business. But none of this was revealed to the trustees. AMP may well be right that all of this is entirely unexceptional within AMP. That does not make it right.

AMP also submitted that there was no evidence that the considerations as to profit being made in other parts of the business affected the timing of the ADA transitions approved by the AMP trustees.[246] I accept that the trustees’ approval of the transition plans did not take into account the consequences for other parts of the business. The trustees simply endorsed the transition plans, prepared by another team within AMP.[247]

The trustees were not told about the detail in the PIRC Pricing Paper or the preparation of the PwC heat maps. The AMP trustees received updates from AMP Life about the progress of the transitions, and information about why the transitions were spread over a number of years.[248] This was the same information provided to the regulators,[249] and it did not record commercial considerations about the effect the timing of the transfers would have on the AMP Group profits.[250]

AMP also submitted that the AMP trustees completed all [ADA] transfers within the mandated timeframe.[251] As noted, the evidence was that the largest ADA transition was completed two months before the time by which the SIS Act required the transfers to be completed.[252] That the AMP trustees did not breach the SIS Act obligation to complete the transfers by a certain date because AMP Life transferred all ADAs by the required date is not the point. The question is whether the AMP trustees otherwise considered all relevant circumstances and discharged their duties to the members in accordance with the law.

There was no evidence that the AMP trustees took any steps to enquire into the financial effect that the timing of the transition of their members’ ADAs to MySuper products would have on those members. This is so even though Ms Sansom’s evidence was that, if the ADA transition were happening today, the boards that she currently serves would certainly ask questions relevant to profit.[253] Instead, the evidence suggests that the AMP trustees were content to leave these decisions with AMP Life and other parts of the AMP Group and be provided with information that those entities thought relevant and necessary to provide to them. That is not conduct consistent with the AMP trustees’ obligations to inform themselves of any relevant matters to a decision being made, and does not demonstrate an exercise of the same degree of care, skill and diligence as a prudent superannuation trustee would in the circumstances.

3.2.12 Pricing decisions

Evidence

There were various delegations in place within the AMP Group for approving fees.[254]

One committee that approved fees was PIRC.[255] Ms Sansom’s understanding was that PIRC was a pricing committee within the AMP Business, but that it was not the role of Trustee Services (or Regulatory Governance) to interact with that committee.[256]

PIRC was responsible for determining the initial pricing of the AMP trustees MySuper products in 2013.[257] Ms Sansom’s understanding of this process was that a proposal was brought to the AMP trustee boards for approval from another part of the business.[258]

The AMP trustees approved the initial pricing of their MySuper products in 2013,[259] and the subsequent changes to that pricing in July 2018.[260] In each case, the fees also had to be approved by the boards of AMP Limited, AMP Life, or both AMP Limited and AMP Life, before they could take effect.[261] This was because of the significance of the fees to the AMP Group’s profits.[262]

Ms Sansom said that, since the initial pricing was approved in 2013, various reviews of the pricing have taken place, but the first time a price change was brought to the trustee boards in relation to MySuper products was July 2018.[263] Ms Sansom said that the opportunity to endorse a price change [had not] been there until quite recently.[264]

What this part of the case study showed

As I have explained, the pricing of AMP’s MySuper products was determined by parts of the AMP Group other than the trustees.

AMP submitted that the fact that pricing required approval by others in the AMP Group did not mean that the AMP trustees failed to properly exercise their functions as, without the AMP trustees’ approval, the products would not have been offered to members.[265] AMP submitted that the trustees were required to ensure that their products could operate sustainably, which required input and approval from others in the AMP Group.[266]

There is no doubt that a trustee can rely on information from others, within or outside a corporate group, to inform themselves as to whether the fees charged through their products are sustainable for the trustee. But there was no evidence that ASL or NM sought analysis about the anticipated effect the fees would have on investment returns, or whether the fees were competitive. Indeed, as already seen, this level of reporting is only now being incorporated into the BMM more than four years after the introduction of their MySuper products. Again, the AMP trustees appeared to rely on the assumption that the pricing provided by PIRC in 2013 was consistent with the AMP trustees’ discharge of their duties to their members.

Ultimately, the fees that were approved by the trustees in 2013 were not competitive. They were significantly reduced in 2018 because they were affecting the net performance of members’ investments, and in some cases, they were generating negative returns for the members.

3.2.13 Termination of arrangements

AMP submitted that the AMP trustees were able and would be willing to terminate their outsourcing arrangements in appropriate circumstances if necessary to protect members’ interests.[267]

In November 2017, following APRA’s review of the BMM in March 2017, AMP Enterprise Risk Management and Trustee Services prepared a list of events that could trigger a review, and lead to termination, of the AMP trustees’ outsourcing arrangements.[268] There were 12 events listed.[269] Each was a significant event.

In the context of the negative net returns on cash investments, Mr Allert said that, beyond lowering the fees, the AMP trustees were not in a position where they could say to AMP Life that the current arrangements were not acceptable to the AMP trustees’ members and move the investments out of AMP Life.[270] Mr Allert said that, in the current circumstances, there was no sensible possibility that would happen.[271]

I explain what this part of the case study showed as part of the wider considerations of the case study as a whole. I now turn to these.


[1] Exhibit 5.265, Witness statement of Richard Allert (506), 25 July 2018, 6 [25].

[2] AMP, Module 5 Case Study Submission, 1 [2]. ASL is the trustee of AMP Superannuation Savings Trust (SST), AMP Retirement Trust (ART) and AMP Eligible Rollover Fund. The AMP Eligible Rollover Fund was not relevant to the case study. NM is the trustee of National Mutual Pro-Super Fund (PSD), National Mutual Retirement Fund (NMRF), Super Directions Fund (SDF), Wealth Personal Superannuation and Pension Fund (Wealth) and The Retirement Plan (TRP): Exhibit 5.265, Witness statement of Richard Allert (506), 25 July 2018, 4 [17]; Exhibit 5.267, Witness statement of Richard Allert (515), 25 July 2018, 4 [17]. The members and assets of TRP were transferred by SFT to Wealth by 30 June 2018: Exhibit 5.265, Witness statement of Richard Allert (506), 25 July 2018, 5 [18].

[3] AMP, Module 5 Case Study Submission, 1 [2].

[4] Exhibit 5.265, Witness statement of Richard Allert (506), 25 July 2018, 2 [1]–[2]; Exhibit 5.267, Witness statement of Richard Allert (515), 25 July 2018, 2 [1]–[2].

[5] Regulatory Governance assists the AMP trustees to operate in compliance with their regulatory, fiduciary and licensing obligations, and also assists the Group Investment Committee: Transcript, Rachel Sansom, 16 August 2018, 510810; Exhibit 5.277, Witness statement of Rachel Sansom, 9 August 2018, 2 [1], 4 [15].

[6] For ASL, see Exhibit 5.267, Witness statement of Richard Allert (515), 25 July 2018, Exhibit RHA-2 [AMP.6000.0139.0071 at .0103, cl 10.7]; Exhibit 5.268, Witness statement of Richard Allert (534), 1 August 2018, Exhibit RHA-3 [AMP.6000.0174.0044 at .0079, cl 10.8]. For NM, see Exhibit 5.265, Witness statement of Richard Allert (506), 25 July 2018, Exhibit RHA-1 [AMP.6000.0145.3402 at .3414, cl 6(e)]; [AMP.6000.0145.1891 at .1960, cl 28]; [AMP.6000.0145.2623 at .2716, cl 21.3]; [AMP.6000.0145.2998 at .3030–.3031, cl 20]; [AMP.6000.0145.3070 at .3107, cl 15].

[7] AMP, Module 5 Case Study Submission, 1 [6]; Transcript, Richard Allert, 16 August 2018, 50712; Exhibit 5.265, Witness statement of Richard Allert (506), 25 July 2018, 5 [22]; Exhibit 5.267, Witness statement of Richard Allert (515), 25 July 2018, 5 [20].

[8] Transcript, Richard Allert, 16 August 2018, 5075; Exhibit 5.267, Witness statement of Richard Allert (515), 25 July 2018, Exhibit RHA-2 [AMP.6000.0190.6472]; Exhibit 5.265, Witness statement of Richard Allert (506), Exhibit RHA-1 [AMP.6000.0125.0272]; Exhibit 5.265, Witness statement of Richard Allert (506), 25 July 2018, Exhibit RHA-1 [AMP.6000.0124.0283]; Exhibit 5.265, Witness statement of Richard Allert (506), 25 July 2018, Exhibit RHA-1 [AMP.6000.0125.0100].

[9] Exhibit 5.267, Witness statement of Richard Allert (515), 25 July 2018, Exhibit RHA-2 [AMP.6000.0190.6472]; Exhibit 5.267, Witness statement of Richard Allert (515), 25 July 2018, Exhibit RHA-2 [AMP.6000.0156.1605].

[10] Exhibit 5.267, Witness statement of Richard Allert (515), 25 July 2018, 6 [24(b)].

[11] ASL is also trustee of another fund that was not relevant to the case study, the AMP Eligible Rollover Fund, which AMP Life also administers. The case study was concerned only with the trustees’ regulated superannuation funds, as defined in SIS Act s 19.

[12] Exhibit 5.267, Witness statement of Richard Allert (515), 25 July 2018, Exhibit RHA-2 [AMP.6000.0190.6472 at .6515 Sched 1 cl 1.1].

[13] Exhibit 5.267, Witness statement of Richard Allert (515), 25 July 2018, Exhibit RHA-2 [AMP.6000.0190.6472 at .6521 Sched 1 cl 1.8].

[14] Exhibit 5.267, Witness statement of Richard Allert (515), 25 July 2018, Exhibit RHA-2 [AMP.6000.0190.6472 at .6523 Sched 1 cl 1.9].

[15] Exhibit 5.267, Witness statement of Richard Allert (515), 25 July 2018, Exhibit RHA-2 [AMP.6000.0190.6472 at .6493 cl 8, .6526 Sched 1 cl 2.1].

[16] Exhibit 5.267, Witness statement of Richard Allert (515), 25 July 2018, Exhibit RHA-2 [AMP.6000.0190.6472 at .6515 Sched 1 cl 1.1].

[17] See, eg, the PDS of the AMP Flexible Super product of ART, a fund for which ASL is trustee: Exhibit 5.433, 8 March 2018, AFS-Fact-Sheet-Getting-to-know-your-AFS.pdf, 60.

[18] Exhibit 5.267, Witness statement of Richard Allert (515), 25 July 2018, Exhibit RHA-2 [AMP.6000.0190.6472 at .6520 Sched 1 cl 1.5(b)].

[19] Exhibit 5.267, Witness statement of Richard Allert (515), 25 July 2018, 42 [192]; Exhibit 5.268, Witness statement of Richard Allert (534), 1 August 2018, 47 [200]. This arrangement is, relevantly in respect of the MySuper products offered through the ASL funds, governed by an investment management agreement: Transcript, Richard Allert, 16 August 2018, 5072; Exhibit 5.277, Witness statement of Rachel Sansom, 9 August 2018, 27 [93]; Exhibit 5.277, Witness statement of Rachel Sansom, 9 August 2018, Exhibit RCS-1 [AMP.6000.0178.3313]; Exhibit 5.265, Witness statement of Richard Allert (506), 25 July 2018, Exhibit RHA-1 [AMP.6000.0124.0283].

[20] Exhibit 5.267, Witness statement of Richard Allert (515), 25 July 2018, 5 [20]. This arrangement is contained in the Master Outsourcing Agreement, and ASL also receives resources from AMP Services pursuant to the Master Resourcing Agreement: Exhibit 5.268, Witness statement of Richard Allert (5-34), 25 July 2018, Exhibit RHA-3 [AMP.6000.0125.0252].

[21] These are SDF, NMRF and PSD. The arrangement is governed by an Administration Deed: Exhibit 5.265, Witness statement of Richard Allert (506), 5 [22]; Exhibit 5.265, Witness statement of Richard Allert (506), Exhibit RHA-1 [AMP.6000.0125.0272].

[22] Exhibit 5.265, Witness statement of Richard Allert (506), 25 July 2018, 6 [26].

[23] Transcript, Richard Allert, 16 August 2018, 5072; Exhibit 5.277, Witness statement of Rachel Sansom, 9 August 2018, 27 [93]; Exhibit 5.277, Witness statement of Rachel Sansom, 9 August 2018, Exhibit RCS-1 [AMP.6000.0178.3313]; Exhibit 5.265, Witness statement of Richard Allert (506), 25 July 2018, Exhibit RHA-1 [AMP.6000.0124.0283].

[24] Being Wealth and TRP (before 30 June 2018). The arrangement is governed by an Agency Agreement: Transcript, Richard Allert, 16 August 2018, 50723; Exhibit 5.265, Witness statement of Richard Allert (506), 25 July 2018, Exhibit RHA-1 [AMP.6000.0124.0283]; Exhibit 5.265, Witness statement of Richard Allert (506), 25 July 2018, Exhibit RHA-1 [AMP.6000.0125.0100].

[25] Exhibit 5.277, Witness statement of Rachel Sansom, 9 August 2018, Exhibit RCS-1 [AMP.6000.0212.0001].

[26] AMP, Module 5 Case Study Submission, 12 [6]; Exhibit 5.277, Witness statement of Rachel Sansom, 9 August 2018, Exhibit RCS-1 [AMP.6000.0212.0001 at .0005, cl 1.1]; Exhibit 5.265, Witness statement of Richard Allert (506), 25 July 2018, Exhibit RHA-1 [AMP.6000.0124.0552 at .0553].

[27] Exhibit 5.277, Witness statement of Rachel Sansom, 9 August 2018, Exhibit RCS-1 [AMP.6000.0212.0001 at .0022, Sched 1].

[28] For a full list of the products offered by the trustees as at December 2017, see the table in Appendix 1 in Exhibit 5.289, 22 November 2017, ASL and NM Board Papers 6 December 2017, 99.

[29] Exhibit 5.277, Witness statement of Rachel Sansom, 9 August 2018, Exhibit RCS-1 [AMP.6000.0213.0016 at .0021–.0022].

[30] Exhibit 5.277, Witness statement of Rachel Sansom, 9 August 2018, Exhibit RCS-1 [AMP.6000.0204.2380 at .2383].

[31] Exhibit 5.277, Witness statement of Rachel Sansom, 9 August 2018, Exhibit RCS-1 [AMP.6000.0213.0016 at .0021–.0022].

[32] Exhibit 5.277, Witness statement of Rachel Sansom, 9 August 2018, Exhibit RCS-1 [AMP.6000.0214.0018 at .0019], [AMP.6000.0162.0225 at .0226].

[33] Through ART and SST: see Exhibit 5.407, 8 June 2018, ASL NM Super Board Papers, 129.

[34] Through SDF: see Exhibit 5.407, 8 June 2018, ASL NM Super Board Papers, 129.

[35] Exhibit 5.277, Witness statement of Rachel Sansom, 9 August 2018, Exhibit RCS-1 [AMP.6000.0188.0065 at .0067].

[36] Exhibit 5.277, Witness statement of Rachel Sansom, 9 August 2018, Exhibit RCS-1 [AMP.6000.0188.0065 at .0067].

[37] Transcript, Richard Allert, 16 August 2018, 5079; Exhibit 5.269, Board Pack of Meeting Held on 16 August 2017, 104.

[38] Exhibit 5.267, Witness statement of Richard Allert (515), 25 July 2018, Exhibit RHA-2 [AMP.6000.0190.6472]; Exhibit 5.267, Witness statement of Richard Allert (515), 25 July 2018, Exhibit RHA-2 [AMP.6000.0156.1605, cl 7.1].

[39] For ART, it was $111,525,000: see Exhibit 6.486, 3 October 2017, [SIGNED] ART Financial Report 30 June 2017 Final 20170927.pdf, 15. For SST, it was $141,390,000: see Exhibit 5.434, 3 October 2017, [SIGNED] SST Financial Report 30 June 2017 Final 20170927.pdf, 21.

[40] See the Administration Deed between NMLA and NM: Exhibit 5.265, Witness statement of Richard Allert (506), Exhibit RHA-1 [AMP.6000.0125.0272 at .0293, cl 8.1]. NMLA novated its rights under the Administration Deed to AMP Life on 1 January 2017: see Exhibit 5.435, 3 October 2017, [SIGNED] SDF Financial Report 30 June 2017 Final 20170927.pdf, 16.

[41] Transcript, Richard Allert, 16 August 2018, 5076, 50801; Exhibit 5.269, Board Pack of Meeting Held on 16 August 2017, 106; Exhibit 5.265, Witness statement of Richard Allert (506), 25 July 2018, Exhibit RHA-1 [AMP.6000.0125.0100, Annexure C, cl 1].

[42] Exhibit 5.267, Witness statement of Richard Allert (515), 25 July 2018, 41 [188]; Exhibit 5.269, Board Pack of Meeting Held on 16 August 2017, 104–5; Exhibit 5.267, Witness statement of Richard Allert (515), 25 July 2018, Exhibit RHA-2 [AMP.6000.0190.6472 at .6492 cl 7.1(b)]; Exhibit 5.267, Witness statement of Richard Allert (515), 25 July 2018, Exhibit RHA-2 [AMP.6000.0125.0252 at .0261, cl 5].

[43] Exhibit 5.267, Witness statement of Richard Allert (515), 25 July 2018, 41 [188]; Exhibit 5.269, August 2017, Board Pack of Meeting Held on 16 August 2017, 104–5; Exhibit 5.267, Witness statement of Richard Allert (515), 25 July 2018, Exhibit RHA-2 [AMP.6000.0125.0252 at .0262, cl 7].

[44] See Exhibit 5.269, Board pack of meeting held on 16 August 2017, 4.

[45] Exhibit 5.265, Witness statement of Richard Allert (506), 25 July 2018, 52 [227]; Exhibit 5.269, Board Pack of Meeting Held on 16 August 2017, 105–6; Exhibit 5.361, 11 December 2017, Side Letter Fee Arrangements.

[46] Exhibit 5.268, Witness statement of Richard Allert (515), 25 July 2018, 41 [188]. The trustee services fee paid by AMP Life to ASL is calculated on the basis of $2.17 per member per annum, and the fee paid by ASL to AMP Services is calculated on the basis of $1.96 per member per annum: Exhibit 5.269, Board Pack of Meeting Held on 16 August 2017, 104–5; Exhibit 5.268, Witness statement of Richard Allert (515), 25 July 2018, Exhibit RHA-2 [AMP.6000.0125.0252 at .0269, Sched A].

[47] Exhibit 5.265, Witness statement of Richard Allert (506), 25 July 2018, 52 [227]. This fee was previously a fixed amount of $1 million per annum, but since 1 January 2017, the amount paid by AMP Life to NM has been $2.16 per member per annum in line with ASL: see Exhibit 5.361, 11 December 2017, Side Letter Fee Arrangements; Exhibit 5.269, Board Pack of Meeting Held on 16 August 2017, 106.

[48] Exhibit 5.265, Witness statement of Richard Allert (506), 53 [227]. This fee was previously a fixed amount of $1.32 million per annum, but since 1 January 2017, it has been $1.96 per member per annum in line with ASL: see Exhibit 5.361, 11 December 2017, Side Letter Fee Arrangements; Exhibit 5.269, Board Pack of Meeting Held on 16 August 2017, 106.

[49] AMP, Module 5 Case Study Submission, 3 [14]; Exhibit 5.265, Witness statement of Richard Allert (506), 25 July 2018, 5 [23]; Exhibit 5.265, Witness statement of Richard Allert (506), 25 July 2018, Exhibit RHA-1 [AMP.6000.0124.0552].

[50] Exhibit 5.277, Witness statement of Rachel Sansom, 9 August 2018, 5 [23]; Transcript, Rachel Sansom, 16 August 2018, 5109.

[51] Exhibit 5.265, Witness statement of Richard Allert (506), 25 July 2018, Exhibit RHA-1 [AMP.6000.0124.0552 at .0553] (emphasis added).

[52] Exhibit 5.265, Witness statement of Richard Allert (506), 25 July 2018, 56 [247].

[53] AMP, Module 5 Case Study Submission, 3 [14(a)]; Exhibit 5.265, Witness statement of Richard Allert (506), 25 July 2018, Exhibit RHA-1 [AMP.6000.0124.0552 at .0554].

[54] Exhibit 5.265, Witness statement of Richard Allert (506), 25 July 2018, Exhibit RHA-1 [AMP.6000.0124.0552 at .0553.0555].

[55] Exhibit 5.265, Witness statement of Richard Allert (506), 25 July 2018, Exhibit RHA-1 [AMP.6000.0124.0552 at .0553].

[56] Exhibit 5.265, Witness statement of Richard Allert (506), 25 July 2018, Exhibit RHA-1 [AMP.6000.0124.0552 at .0556].

[57] Exhibit 5.265, Witness statement of Richard Allert (506), 25 July 2018, 56 [247]; AMP, Module 5 Case Study Submission, 3 [14(b)-(c)]; Exhibit 5.265, Witness statement of Richard Allert (506), 25 July 2018, Exhibit RHA-1 [AMP.6000.0124.0552 at .0555].

[58] Exhibit 5.265, Witness statement of Richard Allert (506), 25 July 2018, Exhibit RHA-1 [AMP.6000.0124.0552 at .0555].

[59] Exhibit 5.265, Witness statement of Richard Allert (506), 25 July 2018, Exhibit RHA-1 [AMP.6000.0124.0552 at .0555].

[60] Exhibit 5.270, 12 August 2016, Trustee Quarterly Investment Management Report, 3; Transcript, Richard Allert, 16 August 2018, 5084.

[61] AMP, Module 5 Case Study Submission, 4 [14(e)].

[62] Exhibit 5.265, Witness statement of Richard Allert (506), 25 July 2018, Exhibit RHA-1 [AMP.6000.0124.0552 at .0555].

[63] Transcript, Richard Allert, 16 August 2018, 5082; see also AMP, Module 5 Case Study Submission, 4 [14(e)].

[64] Exhibit 5.265, Witness statement of Richard Allert (506), 25 July 2018, Exhibit RHA-1 [AMP.6000.0124.0552 at .0555].

[65] Exhibit 5.265, Witness statement of Richard Allert (506), 25 July 2018, Exhibit RHA-1 [AMP.6000.0124.0552 at .0555].

[66] Exhibit 5.270, 12 August 2016, Trustee Quarterly Investment Management Report, 3; Transcript, Richard Allert, 16 August 2018, 5084.

[67] Exhibit 5.270, 12 August 2016, Trustee Quarterly Investment Management Report, 3; Transcript, Richard Allert, 16 August 2018, 5084.

[68] Transcript, Richard Allert, 16 August 2018, 50867 (emphasis added).

[69] Exhibit 5.270, 12 August 2016, Trustee Quarterly Investment Management Report, 3; Transcript, Richard Allert, 16 August 2018, 5084, 5087.

[70] Transcript, Richard Allert, 16 August 2018, 5086–7, 5091.

[71] AMP, Module 5 Case Study Submission, 9 [37], 10 [43]–[44]; Exhibit 5.271, 12 May 2018, ASL and NM Super Board Papers May 2018, 40; Transcript, Richard Allert, 16 August 2018, 508991.

[72] Exhibit 5.406, 15 May 2018, Breach Report to ASIC.

[73] Exhibit 5.271, 12 May 2018, ASL and NM Super Board Papers May 2018, 40; Transcript, Richard Allert, 16 August 2018, 5090.

[74] Transcript, Richard Allert, 16 August 2018, 5092; Exhibit 5.272, 11 April 2015, Member Statement Super Directions for Business for Year Ended 28 February 2015.

[75] Transcript, Richard Allert, 16 August 2018, 5093; Exhibit 5.273, 8 June 2018, Member Statement Super Directions for Business for Year Ended 28 February 2018.

[76] Transcript, Richard Allert, 16 August 2018, 5093.

[77] Transcript, Richard Allert, 16 August 2018, 5095.

[78] Transcript, Richard Allert, 16 August 2018, 5095.

[79] Transcript, Rachel Sansom, 16 August 2018, 5148; Exhibit 5.294, 13 August 2018, Member Statement Super Directions for Business Year Ended 30 June 2016].

[80] Transcript, Rachel Sansom, 16 August 2018, 5148; Exhibit 5.294, 14 October 2016, Member Statement Super Directions for Business Year Ended 30 June 2016.

[81] Transcript, Rachel Sansom, 16 August 2018, 5149.

[82] AMP, Module 5 Case Study Submission, 1011 [45].

[83] Transcript, Richard Allert, 16 August 2018, 5103; Exhibit 5.290, 25 July 2018, ASL and NM Board Papers, 19.

[84] Transcript, Richard Allert, 16 August 2018, 5103; Exhibit 5.290, 25 July 2018, ASL and NM Board Papers, 19.

[85] Exhibit 5.290, 25 July 2018, ASL and NM Board Papers, 19.

[86] Transcript, Rachel Sansom, 16 August 2018, 5148; see also Exhibit 5.290, 25 July 2018, ASL and NM Board Papers, 19.

[87] AMP, Module 5 Case Study Submission, 11 [47]; Exhibit 5.406, 15 May 2018, Breach Report to ASIC.

[88] AMP, Module 5 Case Study Submission, 11 [47]; Exhibit 5.406, 15 May 2018, Breach Report to ASIC.

[89] AMP, Module 5 Case Study Submission, 11 [49]; Exhibit 5.290, 25 July 2018, ASL and NM Board Papers, 22; Transcript, Richard Allert, 16 August 2018, 5094, 5096.

[90] Transcript, Richard Allert, 16 August 2018, 5089–90, 5104; Exhibit 5.407, 2 July 2018, ASL NM Super Board Papers, 107; Exhibit 5.271, 12 May 2018, ASL and NM Super Board Papers May 2018, 40.

[91] Exhibit 5.407, 2 July 2018, ASL NM Super Board Papers, 107–8.

[92] Exhibit 5.277, Witness statement of Rachel Sansom, 9 August 2018, 45 [165].

[93] Exhibit 5.277, Witness statement of Rachel Sansom, 9 August 2018, 45 [165].

[94] Transcript, Rachel Sansom, 16 August 2018, 5147.

[95] Transcript, Rachel Sansom, 16 August 2018, 5147.

[96] AMP, Module 5 Case Study Submission, 11 [47]; Exhibit 5.406, 15 May 2018, Breach Report.

[97] Exhibit 5.406, 15 May 2018, Breach Report.

[98] AMP, Module 5 Case Study Submission, 11 [47], 17 [81], 20 [91].

[99] AMP, Module 5 Case Study Submission, 20 [92].

[100] Prudential Standards are made by APRA pursuant to SIS Act s 34C(1), and are part of the RSE licensee law: see the par (aa) of the definition ofRSE licensee lawin SIS Act s 10(1). Section 29E(1)(a) imposes a condition on all RSE licensees that they must comply with the RSE licensee law.

[101] See SIS Act s 52(6)(a)(i).

[102] See SIS Act s 52(6)(a)(viii).

[103] Exhibit 5.406, 15 May 2018, Breach Report (emphasis added).

[104] For the purposes of Prudential Standard SPS 530,RSE licenseehas the meaning given in SIS Act s 10(1).

[105] APRA, Prudential Standard SPS 530, 15 November 2012, [6(c)].

[106] SPS 530 describes an investment governance framework as the totality of systems, structures, policies, processes and people to address the RSE licensee’s responsibilities with regard to investments of each RSE (fund) within the RSE licensee’s business operations, which includes generating returns to meet investment objectives while managing and monitoring all identified sources of investment risk: see APRA, Prudential Standard SPS 530, 15 November 2012 [9].

[107] APRA, Prudential Standard SPS 530, 15 November 2012, [8].

[108] APRA, Prudential Standard, SPS 530, 15 November 2012, [24].

[109] AMP, Module 5 Case Study Submission, 20 [92].

[110] AMP, Module 5 Case Study Submission, 20 [92]; see also 8 [30].

[111] Exhibit 5.406, 15 May 2018, Breach Report to ASIC.

[112] Exhibit 5.406, 15 May 2018, Breach Report to ASIC.

[113] Transcript, Richard Allert, 16 August 2018, 508990.

[114] Transcript, Rachel Sansom, 16 August 2018, 5132.

[115] AMP, Module 5 Case Study Submission, 11 [46], 17 [81].

[116] Exhibit 5.406, 15 May 2018, Breach Report to ASIC.

[117] Exhibit 5.271, 12 May 2018, ASL and NM Super Board Papers May 2018, 41.

[118] Transcript, Richard Allert, 16 August 2018, 50901.

[119] Transcript, Richard Allert, 16 August 2018, 5097; Exhibit 5.274, 16 October 2017, Letter from APRA to Sansom and Allert.

[120] For the SDF and SST generic options, and the choice lifecycle option in ART: AMP, Module 5 Case Study Submission, 13 [59].

[121] AMP, Module 5 Case Study Submission, 13 [59].

[122] AMP, Module 5 Case Study Submission, 13 [59].

[123] Exhibit 5.275, 8 July 2018, ASL and NM Super Board Papers for meeting of 25 July 2018, 14.

[124] Exhibit 5.275, 8 July 2018, ASL and NM Super Board Papers for meeting of 25 July 2018, 9; Transcript, Rachel Sansom, 16 August 2018, 5113.

[125] Transcript, Rachel Sansom, 16 August 2018, 5140.

[126] Transcript, Rachel Sansom, 16 August 2018, 5140.

[127] Transcript, Richard Allert, 16 August 2018, 5088; Transcript, Rachel Sansom, 16 August 2018, 51312; Exhibit 5.286, 19 September 2016, Board Papers AMP Super and NM Super for Meeting of 20 September 2016, 359.

[128] Transcript, Richard Allert, 16 August 2018, 5088; Transcript, Rachel Sansom, 16 August 2018, 51312; Exhibit 5.286, 19 September 2016, Board Papers AMP Super and NM Super for Meeting of 20 September 2016, 359.

[129] Transcript, Rachel Sansom, 16 August 2018, 5132.

[130] Exhibit 5.287, 3 April 2017, Memorandum 3 April 2017 from AMP Investment Regulatory Governance Concerning MySuper Performance Measurement.

[131] Exhibit 5.287, 3 April 2017, Memorandum 3 April 2017 from AMP Investment Regulatory Governance Concerning MySuper Performance Measurement, 2 (emphasis in original).

[132] Exhibit 5.287, 3 April 2017, Memorandum 3 April 2017 from AMP Investment Regulatory Governance Concerning MySuper Performance Measurement, 2.

[133] Transcript, Rachel Sansom, 16 August 2018, 5134; Exhibit 5.287, 3 April 2017, Memorandum 3 April 2017 from AMP Investment Regulatory Governance Concerning MySuper Performance Measurement, 7.

[134] Transcript, Rachel Sansom, 16 August 2018, 5135.

[135] Exhibit 5.408, 6 December 2016, ASL and NM Super Board Papers, 128–36; Transcript, Rachel Sansom, 16 August 2018, 5138; Exhibit 5.289, 30 November 2017, ASL and NM Board Papers 6 December 2017, 67, 69.

[136] Explanatory Memorandum, Superannuation Legislation Amendment (Trustees Obligations and Prudential Standards) Bill 2012 (Cth), 13 [1.16].

[137] Explanatory Memorandum, Superannuation Legislation Amendment (Trustees Obligations and Prudential Standards) Bill 2012 (Cth) at 13 [1.17].

[138] AMP, Module 5 Case Study Submission, 20 [93].

[139] AMP, Module 5 Case Study Submission, 13 [58], 18 [80]. In respect of the trustee boards, AMP references Transcript, Richard Allert, 16 August 2018, 5103 as evidence that theTrustees continued to advocate for the fees to be lowered in the interests of members’. This is a reference to Mr Allert’s evidence that he had advocated for the fees to be reduced and compensation to be paid to those members invested in cash who received a negative net return over the last three years not MySuper members.

[140] Transcript, Rachel Sansom, 16 August 2018, 5140.

[141] Exhibit 5.408, 6 December 2016, ASL and NM Super Board Papers, 128–36; Transcript, Rachel Sansom, 16 August 2018, 5138; Exhibit 5.289, 30 November 2017, ASL and NM Board Papers 6 December 2017, 67, 69.

[142] Exhibit 5.271, 12 May 2018, ASL and NM Super Board Papers May 2018, 41; see also Exhibit 5.407, 8 June 2018, ASL and NM Super Board Papers, 107–8.

[143] Transcript, Rachel Sansom, 16 August 2018, 51412.

[144] AMP, Module 5 Case Study Submission, 11 [51].

[145] SIS Act s 29VP(2).

[146] SIS Act s 29VP(3).

[147] Exhibit 5.277, Witness statement of Rachel Sansom, 9 August 2018, 53 [207]; Exhibit 5.265, Witness statement of Richard Allert (506), 25 July 2018, Exhibit RHA-1 [AMP.6000.0124.0552 at .0554].

[148] Exhibit 5.277, Witness statement of Rachel Sansom, 9 August 2018, 53 [207]; Exhibit 5.265, Witness statement of Richard Allert (506), 25 July 2018, Exhibit RHA-1 [AMP.6000.0124.0552 at .0554].

[149] Exhibit 5.277, Witness statement of Rachel Sansom, 9 August 2018, 534 [208].

[150] Exhibit 5.291, 7 April 2017, Letter from APRA to Sansom, 3, 5.

[151] Transcript, Rachel Sansom, 16 August 2018, 5142; Exhibit 5.291, 7 April 2017, Letter from APRA to Sansom.

[152] Exhibit 5.277, Witness statement of Rachel Sansom, 9 August 2018, 54 [209].

[153] Exhibit 5.410, 30 January 2018, Email from APRA to AMP; Exhibit 5.411, 30 January 2018, Letter from APRA to AMP.

[154] Exhibit 5.277, Witness statement of Rachel Sansom, 9 August 2018, 53 [205].

[155] Exhibit 5.277, Witness statement of Rachel Sansom, 9 August 2018, 54 [211].

[156] AMP, Module 5 Case Study Submission, 5 [15].

[157] AMP, Module 5 Case Study Submission, 2 [9]; Exhibit 5.277, Witness statement of Rachel Sansom, 9 August 2018, 54 [209].

[158] AMP, Module 5 Case Study Submission, 5 [15]; Exhibit 5.277, Witness statement of Rachel Sansom, 9 August 2018, 54 [210].

[159] Exhibit 5.277, Witness statement of Rachel Sansom, 9 August 2018, 54 [210].

[160] Transcript, Rachel Sansom, 16 August 2018, 5143.

[161] Transcript, Rachel Sansom, 16 August 2018, 5143.

[162] Exhibit 5.277, Witness statement of Rachel Sansom, 9 August 2018, 54 [212]; Exhibit 5.277, Witness statement of Rachel Sansom, 9 August 2018, Exhibit RCS-1 [AMP.6000.0051.0612].

[163] Exhibit 5.277, Witness statement of Rachel Sansom, 9 August 2018, 54 [212]; Exhibit 5.277, Witness statement of Rachel Sansom, 9 August 2018, Exhibit RCS-1 [AMP.6000.0051.0612].

[164] Exhibit 5.277, Witness statement of Rachel Sansom, 9 August 2018, 53 [204]; Exhibit 5.407, 8 June 2018, ASL NM Super Board Papers, 220–1.

[165] Transcript, Rachel Sansom, 16 August 2018, 5145; Exhibit 5.293, 28 August 2017, Licensee Incidents Panel Agenda.

[166] Exhibit 5.412, 9 November 2017, Licensee Incidents Panel Meeting Agenda, 4; Exhibit 5.413, 9 November 2017, Licensee Incidents Panel Meeting Minutes.

[167] Exhibit 5.412, 9 November 2017, Licensee Incidents Panel Meeting Agenda, 4; Exhibit 5.413, 9 November 2017, Licensee Incidents Panel Meeting Minutes.

[168] Exhibit 5.407, 8 June 2018, ASL and NM Super Board Papers, 221; Transcript, Rachel Sansom, 16 August 2018, 5145.

[169] Exhibit 5.407, 8 June 2018, ASL and NM Super Board Papers, 215.

[170] Exhibit 5.292, 26 June 2018, AMP Superannuation Breach Report.

[171] Exhibit 5.292, 26 June 2018, AMP Superannuation Breach Report.

[172] Exhibit 5.277, Witness statement of Rachel Sansom, 9 August 2018, 534 [208].

[173] Exhibit 5.407, 8 June 2018, ASL and NM Super Board Papers, 221.

[174] Exhibit 5.267, Witness statement of Richard Allert (515), 25 July 2018, Exhibit RHA-2 [AMP.6000.0190.6472 at .6520, Sched 1 cl 1.5(b)].

[175] SIS Act s 29SAC charging fees deemed to be conflicted remuneration on MySuper products.

[176] Exhibit 5.412, 9 November 2017, Licensee Incidents Panel Meeting Agenda, 3.

[177] Exhibit 5.412, 9 November 2017, Licensee Incidents Panel Meeting Agenda, 3; Exhibit 5.413, 9 November 2017, Licensee Incidents Panel Meeting Minutes.

[178] Exhibit 5.412, 9 November 2017, Licensee Incidents Panel Meeting Agenda, 4; Exhibit 5.413, 9 November 2017, Licensee Incidents Panel Meeting Minutes.

[179] Exhibit 5.407, 8 June 2018, ASL and NM Super Board Papers, 222.

[180] Exhibit 5.292, 26 June 2018, AMP Superannuation Breach Report.

[181] Exhibit 5.292, 26 June 2018, AMP Superannuation Breach Report.

[182] Exhibit 5.292, 26 June 2018, AMP Superannuation Breach Report.

[183] Transcript, Rachel Sansom, 16 August 2018, 5142; Exhibit 5.291, 7 April 2017, Letter from APRA to Sansom.

[184] AMP, Module 5 Case Study Submission, 19 [88].

[185] Transcript, Rachel Sansom, 16 August 2018, 5151.

[186] Transcript, Rachel Sansom, 16 August 2018, 5152.

[187] Transcript, Rachel Sansom, 16 August 2018, 5150; Exhibit 5.277, Witness statement of Rachel Sansom, 9 August 2018, 57 [220].

[188] Exhibit 5.277, Witness statement of Rachel Sansom, 9 August 2018, 58 [222].

[189] Exhibit 5.277, Witness statement of Rachel Sansom, 9 August 2018, 58 [222].

[190] Exhibit 5.277, Witness statement of Rachel Sansom, 9 August 2018, 58 [221].

[191] Exhibit 5.277, Witness statement of Rachel Sansom, 9 August 2018, 58 [222].

[192] Transcript, Rachel Sansom, 16 August 2018, 5150; Exhibit 5.277, Witness statement of Rachel Sansom, 9 August 2018, 60 [236].

[193] Note that not all of the products affected were the AMP trustees’ super products AMP Life products, which were not held by the AMP trustees’ members, were also affected: see Exhibit 5.277, Witness statement of Rachel Sansom, 9 August 2018, 59 [228], 60 [238].

[194] Transcript, Rachel Sansom, 16 August 2018, 5150; Exhibit 5.277, Witness statement of Rachel Sansom, 9 August 2018, 59 [228].

[195] Transcript, Rachel Sansom, 16 August 2018, 5150; Exhibit 5.277, Witness statement of Rachel Sansom, 9 August 2018, 60 [237], 61 [239].

[196] Exhibit 5.277, Witness statement of Rachel Sansom, 9 August 2018, 59 [228], 60 [237].

[197] Transcript, Rachel Sansom, 16 August 2018, 5152.

[198] Transcript, Rachel Sansom, 16 August 2018, 5151; Exhibit 5.295, 3 August 2017, AMP Capital Breach Notice to ASIC.

[199] Transcript, Rachel Sansom, 16 August 2018, 5151.

[200] Transcript, Rachel Sansom, 16 August 2018, 5151.

[201] Exhibit 5.271, 12 May 2018, ASL and NM Super Board Papers May 2018, 36.

[202] Exhibit 5.277, Witness statement of Rachel Sansom, 9 August 2018, 62 [241].

[203] Transcript, Rachel Sansom, 16 August 2018, 51512.

[204] See SIS Act s 102(1)(b).

[205] See SIS Act s 102(a)(i).

[206] Exhibit 5.277, Witness statement of Rachel Sansom, 9 August 2018, Exhibit RCS-1 [AMP.6000.0190.6646].

[207] Exhibit 5.277, Witness statement of Rachel Sansom, 9 August 2018, Exhibit RCS-1 [AMP.6000.0190.6646].

[208] AMP, Module 5 Case Study Submission, 19 [89].

[209] Exhibit 5.267, Witness statement of Richard Allert (515), 25 July 2018, Exhibit RHA-2 [AMP.6000.0190.6472].

[210] Exhibit 5.265, Witness statement of Richard Allert (506), 25 July 2018, Exhibit RHA-1 [AMP.6000.0125.0272].

[211] AMP, Module 5 Case Study Submission, 19 [89].

[212] Transcript, Rachel Sansom, 16 August 2018, 5150; Exhibit 5.277, Witness statement of Rachel Sansom, 9 August 2018, 59 [228], 60 [237], 61 [239]. Note that not all of the products affected were the AMP trustees’ super products AMP Life products, which were not held by the AMP trustees’ members, were also affected: see Exhibit 5.277, Witness statement of Rachel Sansom, 9 August 2018, 59 [228], 60 [238].

[213] Exhibit 5.277, Witness statement of Rachel Sansom, 9 August 2018, 57 [221], 60 [238].

[214] Transcript, Rachel Sansom, 16 August 2018, 51512.

[215] Transcript, Rachel Sansom, 16 August 2018, 51123, 5124.

[216] Transcript, Rachel Sansom, 16 August 2018, 5116.

[217] Exhibit 5.280, 3 May 2013, Trustees MySuper Transition Plan, 8, 10.

[218] Exhibit 5.280, 3 May 2013, Trustees MySuper Transition Plan, 8, 10.

[219] See SIS Act Pt 33.

[220] Exhibit 5.280, 3 May 2013, Trustees MySuper Transition Plan, 8, 10.

[221] Transcript, Rachel Sansom, 16 August 2018, 5123.

[222] Transcript, Rachel Sansom, 16 August 2018, 5153; Exhibit 5.296, 24 March 2015, AMP Super and NM Super Board Papers, 73.

[223] Transcript, Rachel Sansom, 16 August 2018, 5154.

[224] Transcript, Rachel Sansom, 16 August 2018, 5118.

[225] Transcript, Rachel Sansom, 16 August 2018, 5117; Exhibit 5.279, 29 May 2013, Paper for Product and Insurance Risk Committee Re MySuper Pricing Report, 17.

[226] Transcript, Rachel Sansom, 16 August 2018, 5117; Exhibit 5.279, 29 May 2013, Paper for Product and Insurance Risk Committee re MySuper Pricing Report, 25.

[227] Transcript, Rachel Sansom, 16 August 2018, 5119; Exhibit 5.279, 29 May 2013, Paper for Product and Insurance Risk Committee re MySuper Pricing Report, 29–30.

[228] Transcript, Rachel Sansom, 16 August 2018, 51223.

[229] Transcript, Rachel Sansom, 16 August 2018, 5119; Exhibit 5.279, 29 May 2013, Paper for Product and Insurance Risk Committee Re MySuper Pricing Report, 29–30.

[230] Exhibit 5.279, 29 May 2013, Paper for Product and Insurance Risk Committee Re MySuper Pricing Report, 5.

[231] Transcript, Rachel Sansom, 16 August 2018, 5122; Exhibit 5.281, 1 May 2013, AMP MySuper Heat Map Analysis, 9.

[232] Transcript, Rachel Sansom, 16 August 2018, 5123; Exhibit 5.281, 1 May 2013, AMP MySuper Heat Map Analysis, 31.

[233] Transcript, Rachel Sansom, 16 August 2018, 5123; Exhibit 5.281, 1 May 2013, AMP MySuper Heat Map Analysis, 43.

[234] Transcript, Rachel Sansom, 16 August 2018, 5123; Exhibit 5.281, 1 May 2013, AMP MySuper Heat Map Analysis, 43.

[235] Transcript, Rachel Sansom, 16 August 2018, 51256; Exhibit 5.282, 22 June 2017, Board Papers AMP Limited, AMP Life and NMLA, 71.

[236] See SIS Act Pt 33.

[237] Transcript, Rachel Sansom, 16 August 2018, 5115–16.

[238] Transcript, Rachel Sansom, 16 August 2018, 5121.

[239] Exhibit 5.283, 27 April 2017, Memorandum to AMP Life and NMLA Audit Committee, 121.

[240] Transcript, Rachel Sansom, 16 August 2018, 5123.

[241] Transcript, Rachel Sansom, 16 August 2018, 5117–18.

[242] Exhibit 5.277, Witness statement of Rachel Sansom, 9 August 2018, Exhibit RCS-1 [AMP.6000.0190.6935].

[243] Transcript, Rachel Sansom, 16 August 2018, 5119.

[244] AMP, Module 5 Case Study Submission, 7 [28].

[245] Exhibit 5.280, 3 May 2013, Trustees MySuper Transition Plan, 8, 10.

[246] AMP, Module 5 Case Study Submission, 7 [27].

[247] Transcript, Rachel Sansom, 16 August 2018, 5112.

[248] Transcript, Rachel Sansom, 16 August 2018, 5153; Exhibit 5.296, 24 March 2015, AMP Super and NM Super Board Papers, 73.

[249] Transcript, Rachel Sansom, 16 August 2018, 5117–18; Exhibit 5.277, Witness statement of Rachel Sansom, 9 August 2018, Exhibit RCS-1 [AMP.6000.0190.6935].

[250] Transcript, Rachel Sansom, 16 August 2018, 5154.

[251] AMP, Module 5 Case Study Submission, 7 [28].

[252] Transcript, Rachel Sansom, 16 August 2018, 5125; Exhibit 5.282, 22 June 2017, Board Papers AMP Limited, AMP Life and NMLA, 71.

[253] Transcript, Rachel Sansom, 16 August 2018, 5119.

[254] Transcript, Rachel Sansom, 16 August 2018, 5113–14.

[255] Transcript, Rachel Sansom, 16 August 2018, 5113.

[256] Transcript, Rachel Sansom, 16 August 2018, 5114.

[257] Transcript, Rachel Sansom, 16 August 2018, 5113; Exhibit 5.278, 13 May 2013, Memorandum to Board of AMP Super and NM Super Concerning MySuper Fee Basis and MySuper Authorisation Application.

[258] Transcript, Rachel Sansom, 16 August 2018, 5113. The proposal was brought to the trustee boards in a memorandum titledMySuper Fee basisdated 13 May 2013: Exhibit 5.278, 13 May 2013, Memorandum to Board of AMP Super and NM Super Concerning MySuper Fee Basis and MySuper Authorisation Application; Transcript, Rachel Sansom, 16 August 2018, 5113. This memorandum was to be read with a memorandum dated 7 May 2013 regarding the applications for MySuper product authorisations: Exhibit 5.278, 7 May 2013, Memorandum to Board of AMP Super and NM Super Concerning MySuper Fee Basis and MySuper Authorisation Application.

[259] Exhibit 5.278, 13 May 2013, Memorandum to Board of AMP Super and NM Super Concerning MySuper Fee Basis and MySuper Authorisation Application; Transcript, Rachel Sansom, 16 August 2018, 5113–14.

[260] Transcript, Rachel Sansom, 16 August 2018, 5113–14, 513942; Exhibit 5.290, 25 July 2018, ASL and NM Super Board Papers, 10.

[261] Transcript, Rachel Sansom, 16 August 2018, 5113–14, 513942.

[262] Transcript, Rachel Sansom, 16 August 2018, 5113–14, 513942.

[263] Transcript, Rachel Sansom, 16 August 2018, 5113.

[264] Transcript, Rachel Sansom, 16 August 2018, 5113.

[265] AMP, Module 5 Case Study Submission, 7 [26].

[266] AMP, Module 5 Case Study Submission, 7 [26].

[267] AMP, Module 5 Case Study Submission, 12 [53]; see also Transcript, Richard Allert, 16 August 2018, 5099.

[268] Exhibit 5.289, 30 November 2017, ASL and NM Board Papers 6 December 2017, 67, 125.

[269] These were: change of ownership; insolvency of AMP Limited (and subsequently AMP Life); significant reputational impact to AMP; change in regulatory requirements that has a significant detrimental impact to AMP; significant change in AMP’s strategy and/or its implementation resulting in a diminished commitment to superannuation; failure to adequately remediate breaches that have an impact on members; AMP’s inability to provide necessary capital requirements; majority of BMM reports not received over two consecutive quarters; sustained underperformance by AMP against agreed standards with no commitment to rectify; significant increase in member fees; material fraud or non-compliance event; and breakdown in relationship that cannot be rectified within agreed timeframe: Exhibit 5.289, 30 November 2017, ASL and NM Board Papers 6 December 2017, 67, 164–7.

[270] Transcript, Richard Allert, 16 August 2018, 5099.

[271] Transcript, Richard Allert, 16 August 2018, 50989.

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