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Money: Conflicts of interest go unnoticed in investment portfolios

11 Apr 2019

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 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.

Most consumers will be familiar with the three smaller banks, St George, Bank of Melbourne and BankSA.

But what they may not realise is that, first, they are wholly owned by Westpac, and second, they are literally the same bank, just branded differently so as not alienate the local clientele.

Of the non-banks in the Westpac family, BT Financial Group is probably the most important. It specialises in superannuation, investments, insurance and financial advice.

Westpac has recently sold down its stake in BT Investment Management from 60% to 31%.

Asgard is what is called an investment ‘platform’ – basically an online investment supermarket. It’s used by (probably Westpac-aligned) financial advisers to invest their clients’ money, often in BT’s investment products.

Uno, meanwhile, is an online mortgage broker. In the company’s “about us” section, it laments the “lack of transparency” in the mortgage broking market.

Ironically there is almost no sign on the website that Uno is majority-owned by major mortgage lender Westpac.

Hastings, meanwhile, is a major infrastructure investor that invests huge sums of money on behalf of superannuation funds.

Nab = National Australia Bank

We’ve already talked about UBank and Home Loan in the previous article, so let’s start with MLC.

MLC is NAB’s answer to BT – a superannuation, investment and financial advice company.

Plum is part of MLC, and specifically provides default workplace superannuation products. It sells super to employers, who then default their employees into the fund if those employees fail to nominate their own fund.

JBWere is a ‘wealth manager’ and stock broker – i.e. a high-class financial adviser that manages money for the very rich as well as operating as a stock broker.

Advantedge is a company that builds ‘white label’ home loans for companies like who want to offer home loans, but don’t have the license, capital or expertise to do so.

Nab also fully owns or partially owns a number of fund managers operating worldwide: Antares Capital, Altrinsic, Fairview Equity Partners, Orchard Street (75%), Intermede Investment Partners, Redpoint Investment Management, Presima, Navigator, Plum, JANA, Cambridge Investment Trust and others.

Commonwealth Bank of Australia has owned Perth-based bank Bankwest outright since 2008, when it bought it off global banking giant HBOS. If you bank with Bankwest, you bank with CBA.

Colonial First State is CBA’s answer to MLC and BT – a superannuation and investment company.

Importantly, CBA has said it wants to sell the investment management part of this business, Colonial First State Asset Management. This is a definite move away from vertical integration. Westpac is moving in the same direction, having sold off the vast majority of BT Investment Management (a separate business from BT Financial Group).

Despite carrying no CBA branding, colourful businessman ‘Aussie John’ Symond’s Aussie Home Loans is 100 per cent owned by Australia’s biggest bank.

Finally, Count is a company that combines accountancy services with financial advice.

Which brings us on to a subject that would need an article all of its own. Australia’s big four banks plus AMP control well over 80 per cent of Australia’s financial advisers. Much of the time, though, you would have no idea because the advisers appear to be independent small businesses.

And finally,…


ANZ’s only subsidiary of note that is not ANZ-branded appears to be OnePath, a wealth business like BT and Colonial First State, which ANZ is in the process of splitting up and selling off to IOOF and Zurich.

This lack of separately branded subsidiaries makes ANZ by far the most transparent of the big four.


Confused, or is it just normal business practice and perfectly acceptable? I would be interested to know what you think.

Keep asking great questions …

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