John Menadue. AMP excess and dud products.

Apr 28, 2014

I have posted several blogs on how powerful insiders bend governments to their will. Just think of the power of the polluter lobby, the mining lobby, the health lobby, the gambling lobby and the hotel lobby.

But the superannuation lobby is probably the most powerful and the most lucrative gravy-train of all. The superannuation industry receives over $32 billion subsidy each year through ‘tax expenditures’ or what we normally call ‘deductions’. In addition there is the tax-free superannuation income for those over 60, like me. In addition to these enormous subsidies to boost the superannuation industry, federal governments require that 9% of employee incomes must be put into superannuation. Not content with these enormous benefits the four banks and the AMP have been lobbying the government and particularly Senator Sinodinis to bury any attempts to outlaw conflicts on interests by financial advisers. Typically this conflict of interest occurs when the financial adviser also supplies the product, as is the case with the four banks and the AMP. But the superannuation industry, and particularly the retail funds, overplayed their hand and the Future of Financial Advice (FOFA) “reforms” under the guise of reducing red tape have been deferred.

But not the AMP. In the SMH on 26 April, Michael West tears the veil from the superannuation junkets which the AMP runs to promote its products. The AMP arranged a ‘professional development conference’ in the Bosporus last week. Michael West put it quite colourfully.

In the footsteps of the Romans and the Ottoman Turks centuries before them, the hordes of AMP descended on the jewel of the Bosporus last week. Some 400 of them; the crème de la crème of AMP’s financial planners, and a host of advisers from Hillross, too, also owned by AMP. In contrast to the Romans who decided to build their empire’s new capital Constantinople there in 330 and the Turks whose troops overran the city in 1453, the throng from 50 Bridge Street(AMP head office in Sydney) descended on the ancient metropolis in planes. In the company of their spouses they overran Istanbul in five star opulence. Unlike the Emperor Constantine and Sultan Mehmed II, AMP and its grand vizier of financial services, Steve Helmich, did not underwrite their Ottoman odyssey from the fruits of empire. It was bankrolled by the ransacking of a mandatory superannuation system. Our latter-day sultans of superannuation have breezily lavished a $20 million junket on their sales force and themselves to boot. Before this year’s Byzantium bash, the AMP held its ‘conference’ in Dublin, South Africa, Amsterdam, Colorado and Buenos Aires. … Surely financial planning should be about the adviser using best endeavours to maximise the wealth of the client.  … . If this was really about education, rather than reward for flogging AMP product, and an enticement to flog more, we solemnly promise to eat our fez. … Let superannuants ponder no more that a third of their life savings can vanish in poorly disclosed fees and commissions. Their advisers are swanning around the grand bazaar like Suleiman the Magnificent, sauntering through the Blue Mosque before a spot of shopping in the ritzy boutiques of Nisantasi.’

The bottle of Grange Hermitage which Barry O’Farrell received from a financial and Liberal Party lobbyist was nothing compared with this orgy and excess by the AMP in the name of ‘professional development’. Or as Michael put it “the ransacking of the mandatory superannuation system”

I must confess I have more than a public policy interest in this extravagance by the AMP. I have a personal interest as well.

About ten years ago my adviser recommended I invest about $55,000 of my super funds in a product called ‘AMP Capital Enhanced Yield Fund’. It turned out to be a dud investment, although small scale dud compared with the cost of dud investments like in Opes Prime and West Point and financial planners like Storm Financial.

In 2008/9, during the Global Financial Crisis the AMP Capital Enhanced Yield Fund decided to limit redemptions. For over five years since then I have been attempting to redeem this investment. Capital loss has been considerable and the income return has been minimal. Over five years I have received small redemptions in dribs and drabs.

With this locked or suspended fund, I received regular advice that ‘managed funds [like AMP Capital Enhanced Yield Fund] are suspended …Please be aware that there is no guarantee that the suspended fund will start processing transactions in the future.’

It is not as if the AMP has been struggling over the long period that my investment has been locked. In the years 2009 to 2013 AMP has made annual profits after tax of $739m, $775m, $759m, $689m and $672m. In 2009, when my investment was locked, Craig Dunn, the CEO of AMP had a 30% pay rise. His total remuneration in 2012 was $3.157 million. Craig Meller, Managing Director of AMP Financial Services had a salary package of $1.917 million per annum. Stephen Dunne, Managing Director of AMP Capital had a salary of $2.133 million p.a.

I have no doubt that AMP acted legally in respect of my foolish investment in a dud product, but have they any shame in the way they continue to pay their executives, or any sense of moral culpability. The payment of these excessive salaries to senior executives is quite consistent with the behaviour of the AMP in splurging $20 million to indulge the sellers of their new products. It’s all about new products. Forget about the dud products they have sold in the past.

But some might say that the government has now set up a Financial System Inquiry to sort all this out. But we should not hold our breath. There is no indication from what I have seen that the issue of vertical integration, which allows the four banks and AMP to rip off customers through their conflict of interest, is in the terms of reference of the FSI. Furthermore Craig Dunn, the former CEO of AMP who received that remuneration package of over $3 million per annum, is a member of the FSI panel. All the panel members are from the finance sector .The public or consumer interest is not to be found. The insiders are in charge.

Can the victims of dud superannuation products look forward to all-expenses paid “professional development conference” next year in Constantinople or some other attractive luxury tourist destination?


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