The Frozen Funds File

A survey on ANZ’s Assessment

A Report .
of “Claims for Additional Compensation”

INGANZFrozenFunds@gmail.com
PO Box 38439, Howick
Manukau 2145 - New Zealand

Re the ING Diversified Yield Fund (DYF)

And the ING Regular Income Fund (RIF) Report 5 24 Nov 2009

Introduction

In July 2009, 99.5% of the investors in ING’s Frozen Funds accepted the ‘offer’ of ING (co-
funded by ANZ) to buy back units for 60/62 cents each. Most investors had purchased these
units for around one dollar and thus took a 40% loss. People had little choice. A refusal re-
fuse to sell their units to ING/ANZ now, would leave their investments frozen for an unde-
termined period, possibly up to 74 years. In September 2009, a few weeks after ING Group
secured ‘closure’ to the Frozen Funds problem, it secured an ‘unencumbered’ sale of ING NZ
to ANZ for a 30% profit. ANZ is now sole owner of ING NZ’s assets, including Frozen Funds.

Upon ‘accepting’ ING’s offer, the 14,000 investors had to sign a ‘waiver’, ceding all rights to
benefit from future rulings by NZ courts or the NZ Commerce Commission. A temporary ex-
ception was made for 2,700 ANZ investors; they were allowed to submit complaints and
claims for additional compensation. These claims would first pass a special assessment proc-
ess by ANZ and if unresolved, could then still be presented to the Banking Ombudsman.

It is not known how many ANZ customers filed a complaint. Educated guesses suggest a
number between 1,300 and 1,600 of the potential 2,700. Early September, ANZ Private
Banking wrote complainants they could expect a response “early October”. It only managed
to send out the first responses on 6 November. We have reliable information that ANZ man-
ages to send out between 40-80 letters per day and that about 800 customers have received
a response from ANZ at this moment in time (24 November 2009).

ANZ has refused to disclose numbers, criteria or percentages regarding the outcome of the
process. ANZ claims it is making an “individual, case-by-case” assessment of each complaint.
However, the National Frozen Funds Group believes each ANZ customers would be greatly
helped in deciding whether or not to accept any ANZ offer of compensation if there was
transparency and he or she knew what ANZ had decided to offer to other customers.

To create that transparency and information, a small survey among members of local Frozen
Funds Groups and subscribers to the Newsletter was organised between 9-23 November.
This report contains the key findings from that survey, with 62 respondents. The survey has
been ‘quick and limited’ and the findings may be somewhat biased because: we only sur-
veyed people in the Frozen Funds network, ANZ’s process has only run half its course, un-
happy customers are more likely to respond than customers satisfied with ANZ’s offer, some
information may have been misunderstood as it passed on verbally and anonymously from a
customer to a local contact person who passed it on verbally to the National Group, etc.

Prepared by the National Frozen Funds Group Trust (24 Nov 2009) INGANZFrozenFunds@gmail.com 1
How Many Claims Were Accepted – And to What Percentage?

First, the quick and limited survey suggests that ANZ accepts a full or partial responsibility
for inappropriate advice to more than half their customers.

Claims wholly or partially accepted by ANZ 58% (36 claims)

Claims rejected by ANZ 42% (26 claims)

Second, while ANZ did accept that its financial advisers had failed their customers in more
than half the cases, ANZ did not assume the full responsibility for this. Our survey shows
that ANZ offers of additional compensation vary widely. Some people were offered a com-
pensation of only an additional 1% of their initial capital – restoring approximately 61% of
their initial investment.1 At the other end of the scale, a few customers received an offer that
restored up to 107% of their initial capital.2

We were not able to discern a pattern in ANZ decisions to award any given percentage of
compensation. (See the section “ANZ’s Reasons” below.) However, by dividing the offered
percentages into three categories of a 15% range, it becomes clear that only about a quarter
(24%) was offered a full or near-full restoration of the money they entrusted to ANZ/ING.

ANZ Accepting or Rejecting Claims

Claims fully rejected 42% (26)
ANZ offers restoring 61%-75% of capital 21% (13)
ANZ offers restoring 76%-90% of capital 13% (8)
ANZ offers restoring 91%-107% of capital 24% (15)
Total 100% (62)

ANZ Accepting or Rejecting Claims ( n=62, dd 24 Nov 09)

24% compensation claim rejected by

ANZ [n=26, ie 42%]

42% ANZ offers restoring 61%-75% of

capital [n=13, ie 21%]

ANZ offers restoring 76%-90% of

13%
capital [n=8, ie 13%]

ANZ offers restoring 91%-107% of

21% capital [n=15, ie 24%]

1
For simplicity’s sake, this report assumes that the earlier partial compensation via ING of 60/62 cents per unit
has restored people’s savings to 60% of their initial capital. This assumption, of course, does not cater for several
individual investor’s variables, e.g. the fact that most people purchased units for prices varying between 95 and
107 cents per unit.
2
The restoration to, for example, 100% of a customer’s initial capital invested in, say, 2004, does not take into
account the compounded interest that this customer has missed out on over the last 5 years. In this light, ANZ
presentation of the matter is not accurate. On the other hand, most customers have put their earlier 60/62 cents
per unit compensation into a special ANZ account that earns an 8.3% interest for the next five years which is
attractive for the younger people, but may be less relevant for many elderly people.

Prepared by the National Frozen Funds Group Trust (24 Nov 2009) INGANZFrozenFunds@gmail.com 2
ANZ’s Reasons to Accept or Reject a Customer’s Claim

In its letters to people who had claim additional compensation, ANZ generally reiterates that
there was nothing inherently wrong in the presentation of the two Funds to its customers –
suggesting ANZ had not misrepresented these funds. Most, if not all, letters note, “The
DYF/RIF was a product in which it was appropriate for you to have an investment”.

ANZ then lists an array of criteria used to reject claims or to award (partial) compensation.
Most people were informed their claim was assessed against one or several of these criteria:
• A customer’s total investments and proportion recommended to be put in the Funds
(as per Morningstar model portfolios)
• A customer’s previous investment history (as ANZ knows it)
• The value of other investment assets the customer has (and ANZ knows of)
• The time the customer was allowed to study the Investment Statements
• Whether the customer approached ANZ to invest, or vice versa
• A customer’s ‘risk profile’ (as per Morningstar model)

If ANZ concludes a customer deserves (partial) compensation, it is generally because ANZ

believes ANZ advisers failed wholly or partially in one or more of the above areas. For exam-
ple: ‘you did not have not enough time to study the investment statement’, or ‘the propor-
tion recommended to be invested in DYF/RIF was too high’.

There is nothing new about these criteria. These criteria have been mentioned in the past by
ANZ, financial advisers, and the Banking Ombudsman as criteria against which people’s
claims should be assessed.

However, ANZ letters do not specify any detail as to why ANZ deems an individual customer
meets wholly, partially or not at all any of the criteria for compensation. ANZ also does not
indicate which – if any – criteria may weigh more than others. In short, an ANZ customer is
merely told the outcome of ANZ’s assessment and further left in the dark.

If a customer was to be awarded an offer of compensation, ANZ calculates the actual value
of the offer by taking into account one or more of the following:
• Additional units and/or cash distributions received from RIF/DYF
• Interest that otherwise might have been have earned on savings
• The above-market-interest of 8.3% to be received on the special ANZ account

Conclusions

There are three principal conclusions from this survey.

The first conclusion is that ANZ persists in its full denial that it (along with ING) may have
been misleading all investors in the two Funds by misrepresenting the character of the Funds
and/or may have been in breach of the Fair Trading Act. In effect, ANZ’s complaint’s process
pretends as if there is no official investigation by the Commerce Commission into the market-
ing and sale of the two Funds. ANZ’s process is still based on the idea that the only problem
is that several individual ANZ advisers provided poor advice to hundreds of individual cus-
tomers. Maintaining this idea is even more surprising in view of the fact that the ANZ CEO
Mike Smith has already admitted he expects to be fined by the Commerce Commission, but
this fine would “not be material”.

Prepared by the National Frozen Funds Group Trust (24 Nov 2009) INGANZFrozenFunds@gmail.com 3
The second conclusion is that ANZ still clings to the investor profiles and recommendations in
Morningstar’s ‘Model Portfolios’ to justify its advisory actions in the past and current assess-
ment of claims. However, it has been proven and admitted that Morningstar’s Model Portfo-
lios were to a large degree ‘purchased’ by ING. Morningstar published one Model Portfolio
with recommendations for ING/ANZ advisers and simultaneously another Model Portfolio
with recommendations for ‘the general market’. The first Model recommended that ‘conser-
vative investors’ safely invest up to 25% of their savings into ING’s DYF and RIF. The other
Model Portfolio did not recommend the two ING funds – at all.

Third, the survey suggest that ANZ’s woes may not be over with this process:

• It is likely that many complainants will continue to take their complaint to the Bank-
ing Ombudsman. First, those who were fully rejected by ANZ (42%) or who only re-
ceived a ‘token’ compensation (21%) have nothing or not much to lose. Second,
some of those who received a 76%-90% offer may decline the offer and continue
with the Ombudsman. After all, in their cases ANZ has already admitted at least a
partial responsibility on paper.

• Once this process for the ANZ customers is over and more clarity emerges on final
numbers – we expect more transparency once the Ombudsman takes an active role
again – the 11,000 non-ANZ investors who have been excluded from the process may
feel they too have every reason to be considered for additional compensation. After
all, isn’t ANZ’s admission that they need to offer full or partial compensation to hun-
dreds customers also a sign that there was something wrong with the DYF and RIF
as products? And, on top of that, isn’t ANZ now also integrating the network of ING-
associated advisers into its force of salesmen and saleswomen?

[end]

Prepared by the National Frozen Funds Group Trust (24 Nov 2009) INGANZFrozenFunds@gmail.com 4