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ANZ recommends a $540,000 nest egg all be invested in ANZ products

The advice goes against what an independent financial adviser would provide.

Jenny Ruth
Tue, 01 May 2018

LATEST: FMA prompts changes to ANZ's disclosure on investment advice

Advice an ANZ Bank representative gave to an investor would have seen all or most of that person’s $540,000 nest egg invested in ANZ products.

And yet the brochure provided to the investor insists ANZ has no conflicts of interest in selecting investments.

This comes as a group appointed by the previous National Party-led government works on extending the rules that govern authorised financial advisers (AFAs) to all those involved in recommending investments, including the staff of banks and fund managers such as AMP.

As well, Australia has a royal commission under way looking at misconduct by banks and other financial institutions. It has already uncovered scandals at AMP, which led to its managing director and chairman resigning and the employment of its senior counsel being terminated. AMP New Zealand has said it operates differently from its Australian parent company.

In the case of the ANZ advice, on one of two pages from the brochure provided to NBR, the ANZ representative advised that, as a base case, 40% of the nest egg should be invested in New Zealand, Australian and international shares, including in listed property vehicles.

The weighting toward equities would vary between 25% and 55% of the investment portfolio. The rest of the nest egg was to be invested in international and New Zealand fixed interest and cash.

The representative called this a “conservative balanced strategy.”

Such advice would be regarded as unexceptional by most advisers when a client wants a conservative approach but still wants some access to some higher-returning and higher-risk investments.

However, in each class of investment, with the exception of Australian equities, the representative recommended ANZ funds. The brochure doesn’t say how ANZ would invest in Australian equities.

The advice says that “for some asset classes, we only buy products provided by us or other ANZ Group companies” and proceeds to list ANZ products for every category apart from Australian shares.

For example, the base case recommendation that 22% of the portfolio be invested in international equities would be achieved solely by buying units in the ANZ Private Global Equity Fund.

For the base case recommendation that 10% be invested in Australasian shares, the New Zealand part of that would be achieved solely by buying units in the ANZ New Zealand Share Fund.

Basic investing rules make it highly unlikely that any independent financial adviser would recommend an entire portfolio be invested in a single bank’s products.

A higher return
It isn’t hard to demonstrate that products other than ANZ’s would be a better deal for the investor.

For example, the base case recommendation is that 6% of the portfolio, or $32,400, be invested in cash and that would be achieved solely by buying ANZ group products.

The website shows ANZ is offering to pay 2.2% for that amount on call while Westpac, a bank with the same credit rating as ANZ, is offering two different products at 2.55% and 2.6%.

Over the period of a year, the 2.6% Westpac product would return $129.60 more than the ANZ product.

The brochure says that in selecting investments, “we are not influenced and are not likely to be influenced by our relationship with ANZ group companies or other areas of our business. Therefore, we have no conflicts of interest in our investment selection process.”

The brochure goes on to explain why products and services provided by ANZ are used.

“We do this because they are either required by your investment strategy or chosen objectively through our investment process,” it says.

“When we select investments under our service, including Australasian equities and New Zealand fixed interest, these selections are based on objective research that considers growth opportunities, investment quality, availability and price,” it says.

“As a result, your portfolio may invest in products issued by ANZ Group companies, such as ANZ corporate bonds.”

The brochure goes on to explain that ANZ’s structure “helps ensure that investment selections are not conflicted.”

NBR asked ANZ if it had any comments about this advice provided to NBR.

“We do not comment on individual customer situations,” ANZ says in its written reply.

“The page supplied is one page of a comprehensive group of disclosure documents, which outline the use of ANZ group products in portfolios,” the bank says.

“Where we use ANZ group managed funds, those funds have exposure to a diversified range of investments, which includes third parties and international managers,” it says.

“The materials also outline the fees charged, including those charged within ANZ group managed funds,” it says.

“We are always open to suggestions of how we can make our disclosure process more transparent. We have recently been working on enhancing our disclosure in this area and will have revised documents for new clients by July 1,” ANZ says.

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Jenny Ruth
Tue, 01 May 2018
© All content copyright NBR. Do not reproduce in any form without permission, even if you have a paid subscription.
ANZ recommends a $540,000 nest egg all be invested in ANZ products