Management and administration costs ... - Royal Commission

Contains Confidential lnfonnation

30 July 2018

David Callan Head of Product Development & Platform Strategy ANZ Wealth - Pensions & Investments Australia and New Zealand Banking Group Limited 242 Pitt Street Sydney NSW 2000

By email:·········

CC: Confidential

Dear David

ANZ.801.098.2259

Insight like no other

Management and administration costs benchmarking review

We refer to our recent meeting and discussions. We are pleased to set out our proposal to provide consulting services to Australia and New Zealand Banking Group Limited {ANZ).

Background

Currently, OnePath Custodians holds all revenue and incurs all costs in relation to the management of its superannuation and pensions business. This includes administration, investment management, insurance and overhead costs. You are developing a new model taking into account structural changes including Zurich's acquisition of ANZ's life insurance business.

Services such as administration and investment management will be provided by Oasis Asset Management {OAM). OAM is proposing a cost plus a margin fee model.

You require Rice Warner to provide a benchmark analysis of the costs proposed to be charged to the ANZ/OnePath superannuation and pension products by OAM to OnePath Custodians for the entire management of these products.

Scope of work

To provide you with your desired outcome, we propose the following scope of work.

We will benchmark these superannuation and pensions costs against the market considering services provided and products represented. We will group the products into three main categories:

l. ANZ SmartChoice

2. OnePath/ANZ OneAnswer super and pension

SYDNEY

LEVEL 1. 2 M ARTI N PLACE

SYDNEY NSW 2000

PHONE: +61 2 9293 3700

MELBOURNE

LEVEL 20. 303 COLLINS STREET

MELBOURNE VIC 3000

PHONE: +61 3 8621 4100

RICE WARNER PTY LTD

ABN 35 003 186 883

AFSL 239191

Management and administration costs benchmarking review

ANZ

3. Legacy products (to be defined).

ANZ.801.098.2260

RIC~WARNER Insight like no other

We will benchmark costs against the market for each product group and in aggregate across all product groups, for the following cost segments:

Table 1. Cost segments and priority levels

Service

Member administration, record keeping and support (including contact centres and technology)

Trustee Support, including Risk Management, Governance and Compliance

Product management, including marketing, dist ribution, employer servicing and communication

Insurance administ ration, including t rustee obligations regarding claims processing and dealing with insurer(s)

Investment management and operations.

+ij@I§ High

Low

Medium

Medium

High

Notes

Includes correspondence with members, tax, regulatory reporting relat ing to member administ ration.

Includes complaint handling

For ANZ Smart Choice ANZ will provide

distribution and market ing. Other products are distributed via advisers.

Excludes insurer's expenses.

OAM will also be responsible for const ructing the life stage funds.

We will include an allowance for recharge of overheads in each component of the benchmark, rather than trying to separate out rent, etc.

Rice Warner wi ll comment on the reasonability of the management and administration costs which have been

proposed to OnePath Custodians focusing on the following:

• Overview of the market.

• Overall market trends which have affected costs in recent years, as well as trends which we anticipate having an impact in the future.

• High-level trends in level and make-up of costs.

To undertake this analysis, we will use a combination of our proprietary data sets and publicly available information.

Out of scope work

We understand that the following work is out of scope and will not be included in the scope of this assignment :

• Super and pensions wrap badges:

Grow Wrap

PortfolioOne.

• Insurance on ly products:

OneCare

World of Protection

ANZ Term Super.

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Contains Confidential Information

Management and administration costs benchmarking review ANZ

Relevant experience

ANZ.801.098.2261

RIC~ Insight like no other

Rice Warner has the necessary experience to complete this assignment . This includes management of tenders for significant service providers, annual expense benchmarking research for superannuation funds and benchmarking of fees and services both in periodic reviews and in the context of inorganic activity. In addition, Tim Jenkins' experience in a previous role includes establishing the framework for a commercial superannuation operation to manage its dealings with an external insurer which had previously been part of the same group.

Some background information on Rice Warner is set out in Appendix B {About Rice Warner). Further information about our services can be found on our website - www.ricewarner.com.

Our team

If we are appointed to undertake this work, Michael Berg will manage the assignment. Michael will be supported by Wayne Kenafacke and Tim Jenkins, and by actuarial analysts and consultants.

Steve Freeborn will provide peer review and will also be available for presentations.

Appendix C {Profiles) contains brief profiles of the team.

Timing

If you proceed to engage Rice Warner, we will commence work immediately on appointment. We suggest the following key dates for your timetable in Table 2. Please note that we will require prompt responses to questions and availability of ANZ personnel with the relevant knowledge to help us meet the proposed timelines.

Table 2. Timetable

Item

Initial analysis of data, questions, workshop(s) as needed

Draft report on high priority areas

Draft report on medium and low priority areas

Final report

Our fees

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Timeframe

of14



Expenses

Confidential

Basis of work

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The basis of our work processes is set out in our Financial Services Guide (FSG), see Appendix D.

We hold our own Australian Financial Services Licence (AFSL) and our consultants are limited to providing advice in their areas of expertise. Our consultants are required to abide by our Consultant's Manual which includes stringent internal peer review processes to ensure that every piece of advice offered by Rice Warner meets a high standard.

Security statement

Rice Warner makes it a priority to protect the confidentiality, integrity and availability of customers' data. We have established a formal approach to protecting our users' security and privacy by implementing an Information Security Management System based on ISO 27001/2 and multi-layered controls and processes. This Security Statement is aimed at being transparent about our information security practices, to help reassure that your data is appropriately protected.

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Rice Warner is committed to continuous improvement of their information security processes and controls. The

security assurance process includes on-going penetration tests, vulnerability and risk assessments as well as

annual security reviews.

Please refer to Appendix E {Security Statement) for further details.

Reproduction

No part of the proposal provided or associated material may be reproduced by any process or distributed in

whole or in part to any party, for any external media, without the prior approval of Rice Warner.

Conflict of interest

We are not aware of any conflict of interest with the undertaking of this work and we will notify you if we

become aware of any situation that might prevent us from providing you with independent advice.

Conclusion

Rice Warner is excited at the prospect of undertaking this important work for you. We have the strengths you

require to deliver an excellent outcome.

If you are comfortable with our proposal, please acknowledge by signing the Client Acceptance in Appendix A

{Client Acceptance). A scanned copy of this client acceptance will be acceptable.

If you would like to discuss any aspect of the proposal, please contact me.

We look forward to your response.

Yours sincerely,

Steve Freeborn

Head of Growth Opportunities & Authorised Representative

Rice Warner Pty Ltd AFSL 239 191

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Contains Confidential lnfonnation ANZ.801.098.2264



Appendix A Client Acceptance

Client: ANZ

Assignment: Management and administration cost s benchmarking review

Cost:

Scope:

Timing:

Confidential

Benchmarking of management and administration costs for ANZ SmartChoice, One Path/ ANZ OneAnswer super and pension, and legacy products.

Draft report on high priority segments to be delivered within - of appointment

Draft report on medium priority segments to be delivered within Mftff]lof appointment

Final report within .. of receipt of comments for consideration

Timeline assumes prompt responses by ANZ to questions from Rice Warner and takes into account that ANZ has already assembled a detailed breakdown of costs by function and product area

The terms of this assignment are accepted by {Insert name of signatory) on behalf of ANZ who represents that they are authorised to accept these terms on its behalf.

Signat ure

Posit ion

Dat e

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Appendix B About Rice Warner

Rice Warner is a trusted partner to many successful organisations operating in Australia’s dynamic financial services sector. Our valued clients include superannuation funds, financial institutions, fund managers, life insurers, administrators, financial planning licensees and providers of financial software. These clients seek our consulting advice, research on products and markets, as well as our financial technology services.

Since 1987, our firm has built an unrivalled reputation for providing fact-based guidance to industry participants. Rice Warner has a rich heritage of independence and informed opinion leadership. This derives from our culture backed by our actuarial roots and unique research across the superannuation, wealth management and life insurance sectors.

Our unique insights, partly generated from our rich databases, help clients to develop effective commercial strategies and operational tactics. This also underpins Rice Warner’s renowned public policy and research activities. The media, industry bodies and policy makers source from Rice Warner our unbiased opinion, research and industry projections.

Since 2007, Rice Warner has built a strong and growing digital capability leveraging financial technology. An example is the support we provide to financial advice firms and others requiring member/customer education tools and software.

Leveraging our rich industry knowledge and actuarial skills, our FinTech offer includes a unique range of client services, designed to meet increasing market demand for intelligent and efficient technology solutions.

Our team of dedicated consultants, who have been selected because of their diverse backgrounds and skills, are committed to working collaboratively with each client to improve their capacity to compete and sustain their market position.

Many of our consultants regularly participate on industry body committees and working groups, including the Actuaries Institute and ASFA. This allows us to stay abreast of emerging and current issues and trends that may impact our clients.

Further information about our business is available on our website (www.ricewarner.com) or can be supplied on request.

Our Financial Services Guide, which describes the way we work, is set out as Appendix D.

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Appendix C Profiles

C.1 Tim Jenkins – Executive General Manager – Superannuation

Tim is Executive General Manager, Superannuation and leads Rice Warner’s high performing superannuation consulting team. He has over 30 years’ experience in superannuation, retirement and group insurance, having held senior positions with Mercer and NAB before joining Rice Warner in April 2018.

Tim’s focus at Rice Warner is on providing strategic and tactical advice to superannuation clients. He is an actuary and has had wide involvement in Australia, New Zealand, Asia and the UK in areas such as defined benefit management, default superannuation, successor fund transfers, risk management and insurance in superannuation.

Tim has extensive leadership experience, and has led Mercer’s global defined contribution consulting, Asia- Pacific Retirement consulting and Asia Investment consulting businesses. He was also Managing Director for Mercer New Zealand, in which period Mercer was selected as a default KiwiSaver provider. Before joining Rice Warner, Tim was responsible for leading NAB’s insurance in superannuation offerings.

Tim is a Fellow of the Institute of Actuaries of Australia and was formerly Chief Examiner for Superannuation for the Institute.

C.2 Stephen Freeborn – Head of Growth Opportunities

Steve has over 25 years’ experience in the financial services industry across all parts of the value chain, having

held senior positions with BT Financial Group and Perpetual Limited before (re) joining Rice Warner in late

2012.

After initially being trained as an actuarial consultant at MJR Consultants (a predecessor firm to Rice Warner),

where he helped develop the outsourcing service and project managed a number of transitions, Steve spent

over 12 years in two of Australia’s pre-eminent wealth management businesses in a combination of sales,

sales management and business management roles in Adelaide and Sydney with intra-state, interstate and

national responsibilities.

He brings a high level of market knowledge together with a deep technical knowledge of the superannuation,

insurance and investment industry and its participants. His experience in business acquisitions has provided

deep insight into the various business drivers and identification of where and how synergies are realised.

Steve has a strong reputation throughout the financial services industry across Australia as a trusted and

reliable business professional. He has been recognised for his leadership capabilities and has experience

leading teams to develop and implement business plans and sales and marketing strategies.

Steve is a Senior Fellow of the Financial Services Institute in Australia and an Affiliate of the Actuaries Institute

in Australia.

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C.3 Michael Berg – Senior Consultant

Michael joined Rice Warner as a Senior Consultant in January 2014. He has over 20 years’ global experience in advising on a wide range of superannuation and investment issues. Michael brings a strong focus on understanding what decisions need to be made, and helping clients to use financial models combined with practical insights to help make these decisions.

Previous roles include being a Senior Manager at PwC and a Partner at Lane Clark & Peacock, a leading UK actuarial firm. His experience includes numerous high impact assignments in a wide range of areas including mergers & acquisitions, investment strategy, defined benefit funding, investment risk modelling, retirement income product design and reviews of significant service providers.

Michael holds a Masters of Applied Finance from Macquarie University and is a Fellow of the Institute of Actuaries of Australia, a Fellow of the Faculty of Actuaries and a CFA Charter Holder.

C.4 Wayne Kenafacke – Senior Consultant

Wayne joined Rice Warner in 2017 bringing over 20 years of superannuation, financial advice, life insurance, general insurance and retail banking experience.

Prior to joining Rice Warner, Wayne worked in a variety of roles within the financial services industry and in recent years has held executive roles as a CFO, Appointed Actuary, GM Products and Chief Actuary. Wayne’s key skill is the ability to lead teams with diverse skillsets, focusing on delivering timely practical advice to key stakeholders, while always maintaining focus on the delivery and development of long-term strategy.

His experience in the C-suite, in addition to his actuarial background, means that Wayne is ideally placed to provide advice on a variety of matters ranging from strategic imperatives, through product and pricing, down to detailed actuarial issues, particularly in superannuation and life insurance.

Wayne is a Fellow of the Institute of Actuaries Australia, a member of the Australian Institute of Company Directors and a graduate of the Melbourne Business School's Leadership Development Program.

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Appendix D Financial Services Guide

This document is a Financial Services Guide (FSG) issued by Rice Warner Pty Ltd (ABN 35 003 186 883).

We hold an Australian Financial Services Licence (AFSL 239 191) and this requires us to inform prospective clients of certain matters relating to our relationship with them and the services we provide, prior to us providing them with a financial service.

D.1 Who are we?

Rice Warner is an Australian firm of consultants completely controlled by its executive directors and staff, with its head office located in Sydney.

We are experts in many aspects of financial services, particularly superannuation. Our consultants abide by our own Code of Conduct. Our actuaries are bound by the Code of Conduct of the Actuaries Institute.

D.2 What advice do we provide?

We provide advice in the fields of superannuation, wealth management and life insurance. The advice provided ranges from general and strategic advice covering a variety of issues through to product advice whereby we provide recommendations about selecting a particular product or service or range of products/services.

D.3 Who provides the advice?

Our Authorised Representatives all hold senior consulting roles within the firm. All projects are managed by an Authorised Representative. All work is peer reviewed before it is finalised.

Each Authorised Representative:

▪ gives advice only in areas where they authorised to do so

▪ follows our processes for delivery of advice

▪ ensures that our other staff do not provide unauthorised advice to clients.

Full details of the person(s) responsible for providing the advice, their qualifications and experience and the advice they will provide are included in any specific proposal we provide to a client.

D.4 Delivery of our advice

We deliver our advice in many forms, including formal reports, presentations to clients, and by discussions in person and by phone or email. Whenever we provide you with advice, we will document this clearly for you.

We will typically provide a formal report (this may be in presentation format) or letter during the assignment which will fully document our advice and the basis on which it is given.

In the event that we make a recommendation to consider using a particular financial product or service, we provide our clients with the original proposals received from product manufacturers or suppliers so that they are aware of the basis on which we have made our decision.

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D.5 Insurance

Rice Warner carries professional indemnity insurance to protect its clients against errors and omissions causing loss to their business. We carry insurance with Vero to comply with the requirements of Section 912B of the Corporations Act 2001. The insurance complies with ASIC Regulatory Guide 126. It includes cover for work carried out by former employees while they were employed by Rice Warner. Of course, we do not expect any of our clients to ever need to call on this facility. We only practice in areas where our consultants have appropriate knowledge and experience.

We have internal risk management practices which minimise the chance of an error or omission occurring. For example, we carefully assess our consultants to ensure they are competent in the areas where they are authorised to give advice. Further, all work is subject to mandatory peer review by an Authorised Representative.

D.6 Remuneration

D.6.1 Rice Warner

We would normally agree to receive a fee or regular retainer expressed as dollar amounts in advance of commencing an assignment. The level of these fees is generally based on an estimate of the time that will be taken, the importance and value of the work undertaken, and the extent that we will draw on the resources and research undertaken by Rice Warner.

The details of specific fee arrangements are provided as part of all proposals for clients.

We then submit an invoice setting out our fee and fully describing the work that was done.

D.6.2 Our employees

All work is undertaken on a fee-for-service or retainer basis.

D.6.3 Reimbursement of expenses

In the course of an assignment, we may incur incidental expenses such as travel. Our policy is to recover these at cost. We do not normally charge for minor expenses such as local courier deliveries or office functions such as photocopying or sending faxes.

D.6.4 Receipt of ‘soft dollars’

We do not receive any form of indirect payment from product suppliers. We will allow our professional staff to attend seminars, training sessions or other functions where they have an educational content. We also allow our staff to accept reasonable invitations to functions as part of our normal business networking. We maintain a register of ‘soft dollar’ receipts.

D.7 Potential conflicts of interest

We do not have any financial association with any financial institution or other product provider. From time-to-time, we are appointed to provide advice to financial institutions and/or product providers on a fee-for-service basis. Where such an organisation submits a proposal in a tender held by us, we would disclose the business

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relationship to our client. We maintain a conflicts of interest register to record that we have advised clients of such relationships.

Our work processes include a structured approach based on our research and market knowledge. We also have compulsory peer review of all advice we provide. This ensures that all our advice is provided entirely on merit.

D.8 Information required to provide advice

We take into account the circumstances of a client prior to providing advice and making recommendations. In order to undertake our work, we may require confidential information from our clients and we hold this material securely. Unless this information is previously known to us or is in the public domain, we will not disclose this information to any other party except with your consent. We retain a copy of all information for our own records and for the purposes of satisfying our professional indemnity insurance terms and conditions.

D.9 Complaints handling procedure

Rice Warner is a member of the Financial Ombudsman Service. If a client were to have any complaint about a service provided to it, they should take the following steps:

▪ write to the Authorised Representative if the dispute is minor and can be resolved at this level

▪ contact Michael Rice of Rice Warner on (02) 9293 3700 or put your complaint in writing and send it to:

M J Rice Responsible Officer Rice Warner GPO Box 5281 Sydney NSW 2001

We will seek to resolve your complaint quickly and fairly.

If the complaint cannot be resolved to your satisfaction you have the right to complain to the Financial Ombudsman Service. They can be contacted on 1300 780 808, or on www.fos.org.au. This service is provided to you free of charge.

The postal address for the Financial Ombudsman Service is:

Financial Ombudsman Service GPO Box 3 Melbourne VIC 3001

This document was first produced in March 2004 and may be modified periodically. Future changes to Rice Warner’s FSG will appear on our website www.ricewarner.com.

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Appendix E Security Statement

Rice Warner makes it a priority to protect the confidentiality, integrity and availability of customers’ data. We have established a formal approach to protecting our users’ security and privacy by implementing an Information Security Management System based on ISO 27001/2 and multi-layered controls and processes. This Security Statement is aimed at being transparent about our information security practices, to help reassure that your data is appropriately protected.

Rice Warner’s security practices have been designed in response to security risks facing any business operating in the information management domain, e.g. fraud, espionage, sabotage, vandalism as well as computer hacking and viruses.

Rice Warner has established a security framework, IT and user-centric security policies as well as a set of processes and corresponding procedures and controls covering:

▪ Patch and Vulnerability Management – approach for discovering, assessing and mitigating vulnerabilities as well as security assurance testing schedule.

▪ Change Management – methods and procedures for efficient management of changes, in order to minimise the impact of change-related incidents upon service quality, and consequently improve day-to-day operations.

▪ Data Handling – storage and handling procedures for public, internal and client information.

▪ Disaster Recovery Planning – set of disaster recovery plans for key applications.

▪ Risk Assessment and Treatment – approach for assessing IT security risks and meeting the requirements of the Rice Warner Information Security Framework and associated policies.

▪ Security Incident Management – approach to managing security related incidents from discovery, classification, and investigation to restoration and risk mitigation.

In addition, Rice Warner has implemented a set of controls covering staff hiring, physical, operational, access control, software development and asset management domains. Rice Warner has classified all of their assets based on their business criticality and implemented relevant controls. Some of the implemented controls have been listed below:

▪ Network protection – perimeter firewalls and edge routers restricting access only to a set of allowed services and traffic.

▪ Disaster recovery – regular disaster recovery tests.

▪ Backups – replication to secondary site in Melbourne three times per day.

▪ Secure transmission and sessions – a set of pre-approved methods to exchange data with external parties and handle it internally, using cryptographic controls where appropriate.

▪ Network – high bandwidth capacity and redundant networks.

▪ Data centres – industry standard network, power, physical and environmental controls including humidity, temperature controls, cooling systems, redundant power supplies and access controls.

▪ Software development – industry-standard coding guidelines to ensure secure coding.

▪ Organisational and administrative security – employee screening, training, audit logging and regular user access reviews.

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▪ Security monitoring – notifications from various sources and alerts from internal systems to identify and manage threats.

▪ Internal and external security testing – tests for security vulnerabilities for network and system targets.

Rice Warner is committed to a continuous improvement of their information security processes and controls. The security assurance process includes on-going penetration tests, vulnerability and risk assessments as well as annual security reviews.

ANZ.801.098.2272

Management and administration costs ... - Royal Commission

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