Andrew Mohl Video Interview Transcript

MP: What are the most important developments in Superannuation for AMP?

AM: I think there were over 2,000 licensed funds a year or so ago. And I think we’re going to see at least an 80% reduction in that total. Viewing that from a corporate point of view, you’ve now got choice of fund. The regulatory requirements are becoming increasingly onerous carrying all sorts of liabilities. You’ve got all of the complexities of administration. Why would you do it? Why not hand it over to specialist provider who can actually reduce your cost structure because you don’t have to have staff involved. You don’t have any of the onerous responsibilities of being the trustee so it’s only the larger companies that will remain in their own plan. I think that’s probably positive from an employee point of view as well as from a company point of view. There’s no question that creates significant opportunities for companies like ourselves. It’s why the fastest growing segment is likely to be employer sponsored master trusts which is the jargon for corporate superannuation over the next 10 years. And a lot of that will probably happen in the next 3 to 4 years.

MP: How many even major companies do you expect to stay with it?

AM: I think the view is we’ll probably still have several hundred funds licensed. For example AMP has moved to a sponsored master trust for its own employees. It happens to be one provided by AMP Financial Services. That was an independent decision and the breadth of the plan was significantly superior to the previous corporate plan.

MP: What time frame do you think that change over will take.

AM: Well as I said, I think there’ll be significant change over the next 3 years.

MP: You also mentioned reduction in fees. Is that an ongoing trend? Are fees going to shrink perhaps even faster than costs?

AM: If we look at the industry and the likely growth in funds under management, you’re going to see significant growth in revenue. Companies like ourselves with a real disciplined budget and costs will see significant reductions in unit costs and that is the basis by which we can reduce fees to customers and at the same time provide better profit margins and returns to shareholders. So there’s the potential there for a win/win. Customers get better value. Shareholders get attractive returns.

MP: If financial planners remains wedded to a commission basis, do you see a possibility of that changing. Of moving to a more professional basis of fee for service?

AM:Our financial planners have had the option of fee for service for quite a period of time.

MP: Do you know what percentage would be actually charging fee for service?

AM: Oh it varies.

It’s growing, but it’s growing day by day.

We see that very much as a decision between the planner and the customer. Effectively some planners only charge fees. They have no up front or trail commissions. Others will do it on a traditional basis. They have the decision over flexibility '” of going up or down '” or to waive completely, and ultimately the decision between the planner and the customer is really does the customer see the value in the service that the planner is providing and we certainly know from our research there’s a very high level of satisfaction of customers with their financial planner.

MP: As a trend though. Do you see it continuing to move?

AM: I think fee for service, particularly the upper end of the market is a very strong trend.

MP: The 75% dividend payout ratio '” do you want to improve it? What’s your target?

AM: We haven’t got a target. The target will be set by the sustainability of dividends. Towards the end of 2006 we will look at the earnings prospects for the group and importantly, the capital requirements of the business organically. Because if we have to keep reinvesting in the business each year and we will be reinvesting in Australia when it’s growing at those sort of rates, then those funds aren’t available for distribution to shareholders. But we believe that the payout ratio will be somewhere between 75 and 100 percent. It won’t reach 100 percent and we still of course have the dividend reinvestment plan so we get some back. But certainly the prospect is that that payout ratio will go up.

MP: Is the AMP investing more offshore? Are you of the school that believes you should be reducing your weightings in Australia?

AM: I think we’ve been overweight Australian equities relative to international equities for some time. We’ve believed that the Australian market was undervalued relative to the international market and part of the reason why we’ve had a very strong performance we’re underweight cash so we’ve actually been bullish on equities as an asset class both domestic and international and we also have hedging in place because we’ve believed that the commodity cycle will be positive for the Australian dollar. But we look at both strategic considerations and tactical considerations in determining asset allocation. To answer your question, I think in the longer term.. since you look at most retirement savings markets most countries are moving to put more money offshore than historically which also means there’s more money coming into Australia than historically as well as more money going out of Australia and that’s just part of the globalisation of capital markets and the fact that companies like AMP, you know, and people all around the world are monitoring our results in the next 24 hours and buying us up against a whole range of peer groups that have nothing to do with the ASX Index.

MP: Yes, but how are you moving your weightings ahead?

AM: Oh that will depend on how we view relative values. There isn’t any plan to change asset allocation. What we’ve done'¦ the biggest shift has been to introduce new asset classes for example. We were the first to go into global listed property securities where we’ve recognized you get greater diversification. We’ve always been strong on direct property and I think we’ll see more direct property internationally. We’ve also had a very strong position around alterative investments. Historically we’ve had resources investments. We’ve had infrastructure investments. So we’ve been very innovative in the selection of asset classes because of the way in which that diversifies risks and enhances returns to the investor.

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