AMP defends fee-for-no-service refunds into own products

AMP chief executive Francesco De Ferrari came under fire at a House economics committee hearing this week around his institution’s decision to place fee for no service refunds owed to former clients into AMP’s Eligible Rollover Super Fund (ERF), which underperformed its peers by more than 40 per cent over a 10-year period.

Mr De Ferrari claimed that the underperformance, cited in media reports earlier this year, was not a like for like comparison and that AMP had no other option when it could not locate the relevant client to distribute the refund.

“Our ERF is unique in the industry because it is a capital guaranteed product – it doesn’t charge entry, exit or switch fees and it works on a crediting rate, which means the [AMP] Life board would decide a crediting rate that is provided net of fees to the client,” he said. 

“You need to compare it to a cash equivalent – a client [in cash] would get CPI ,which is 2.1 per cent, or if you keep cash in the bank the equivalent is 1 per cent. 

“We felt the spirit of the law was to reunite the money as quickly as possible with a client’s super account and not take any risks with a client who we can’t find and who we don’t know.”

Mr De Ferrari provided more detail on the group’s fee for no service remediation program, revealing that AMP had employed 500 staff to work on remediation and the vast number of cases had been resolved to the satisfaction of clients.

“If I look at the effort required, we are trying to run this as quickly as possible – I believe we have one of the best remediation programs in the industry,” he said.

“In Q4 last year, we decided that for clients where we had charged $400 or less per year, we would pay them without going back to look at their files, because it was more expensive to run the program than to get that money back to clients.

“There were about maybe 30 or 40 [cases] where clients have said ‘you better explain how you reached this determination’, and single digits of these cases are with AFCA today.”

Mr De Ferrari added that the institution had transitioned advisers to annual opt-in fee agreements for clients ahead of the legislated time frame, in an effort to prevent systemic fee for no service issues across its client books in future.

“Commissioner Hayne pointed out a number of underlying causes to clients being charged a fee without service – the fees were enshrined in ongoing agreements, the fees were often invisibly charged in the product that wasn’t transparent to the client, the services in these contracts were not well defined, and the licensees did not monitor and supervise the provision of services to have a backstop to protect the consumer,” he said.

“We have upgraded our advice policy ahead of legislation, we are migrating clients to annual agreements where the client will have a clear indication of services provided for the money they pay, and there is an authorisation from the client as to where they want those fees deducted from. We believe by moving early we will comply with a key issue Hayne has raised.”