Conflicts of interest go unnoticed in investment portfolios.
New Zealanders are hopeless at demanding transparency from their investment providers.
It seems they wouldn't know a conflict of interest if they fell over one in the street. There are multiple related parties with inter-locking financial relationships amongst most of the major investment providers here in New Zealand and nobody seems to care.
They should care.
Is it ignorance, or are we just so laid-back we are nearly horizontal?
Where there is a conflict of interest between the adviser giving the advice and an investment provider there is a reasonable case that the interests of the investor are not being put first.
New Zealand investors should worry about the investment services they are getting if their interests are coming second behind a big institution. Take the example of investment advice being given by an institution that uses a share broker that is also in the same ownership group, owned by the same parent.
Will the share broker try as hard to get the best deal buying and selling shares for the client where the relationship is not only a commercial one but also a related-party one? Will they keep their costs as low as they otherwise would in a strictly commercial situation?
Will the investment adviser fire the broker for poor service as easily as they would fire an independent broker? No one will ever know and that is why it is impossible to defend a claim of bias when related parties are involved in providing investment advice. The normal commercial checks and balances are missing or at best, weakened.
I have recently seen an example of an experienced lawyer not picking up on related party interests in the selection of an investment provider for a family trust of which they are the independent trustee. The right questions were not asked. If an experienced lawyer couldn't pick it up, I can't see many individual investors seeing through it all.
I recently came across this article by James Fernyhough of TheNewDaily. Here is the article in full with the source link at the end. Beware, it talks of conflicts of interest in the Australian scene which is not identical to New Zealand although the very same banks are the major providers of financial advice here in New Zealand as are a number of the related parties.
The Australian companies you didn't know were owned by the big four banks
By: James Fernyhough, The NEWDAILY, 2 March 2018
Everyone knows Australia's big four banks are huge, accounting as they do for almost one quarter of the value of all the companies on the entire Australian Stock Exchange.
But they are actually even bigger than they seem, thanks to a network of other brands and subsidiaries that often carry no obvious sign that they belong to a big bank.
This is part of a controversial practice known as 'vertical integration', which sees single companies controlling several links in the supply chain. It's a practice fraught with potential conflicts of interest, and the big banks absolutely love it.
This week The NewDaily revealed a prime example of vertical integration - NAB's deal with realestate.com.au to sell 'white labelled' (ie disguised) home loans through the property website.
But there are many, many more such examples of vertical integration. This rifeness combined with the potential conflicts means it will surely be a major focus of the banking royal commission.
So, with the first royal commission grilling just a few days away, we thought we'd clarify which brands belong to which banks - just in case you haven't picked it up yourself.