Faith in The Trust Company

As Australia's wealth management industry shrinks further, investors should hone their radar for any conflict of interest.

The proposed acquisition of The Trust Company has profound implications for investors on the quest for independent, impartial investment advice. Often touted as ‘strategic alliances,’ this amalgamation of financial service entities is consolidating a sector which should be encouraged to remain robustly independent.

With Super Guarantee contribution increased to 9.25 per cent at the start of this financial year, there are more dollars to provide advice on - and for managers to collect fees on.

The first three months of the calendar year produced the strongest quarterly flows since the beginning of the global financial crisis, reflecting a renewed interest in investments. A cash rate at a meagre 2.5 per cent means there will be no shortage of funds to be invested, giving the trend more momentum.

For IOOF, its proposed takeover of The Trust Company is tipped to add somewhere between 5 and 8 per cent to earnings per share in the 2015 financial year. A measured acquisition on this projection.
Whether they have successfully muscled Perpetual out of the race won’t be known until early next week. Still, more companies falling under the IOOF umbrella, marketed as something else, will reduce the number of unaligned institutions individuals can seek financial and investment advice from. 

IOOF already owns some well-known brands – Perennial Investment Partners, Spectrum Super and Ord Minnett (70 per cent) feature. While IOOF directly offers access to a range of managed funds, it does have Perennial-managed investments on its list. Fees are collected for providing advice, or via the investment platform and managing the actual end investment. All within the IOOF-family.

IOOF isn’t alone. Earlier this year, SFG Australia acquired boutique advisors Lachlan Partners to go with their suite of independently-badged brands.

Acquisition of existing brands is not a new phenomenon. There is National Australia Bank’s ownership of MLC, while Westpac offers BT Wrap. But it is becoming clearer that you can receive your advice and invest all with the same company, threatening to remove objectivity along the way. The Future of Financial Advice (FOFA) goes some way to outlining any conflicts of interest but doesn’t fully solve the issues faced by end-users of financial services.   

It is easy to see why financial service companies can be a good investment, collecting revenue from inter-related activities as they do. IOOF is up 42 per cent and SFG Australia 98 per cent over the past year, easily outdoing the ASX 200 at 20 per cent.

The issue now facing investors as they seek advice is whether the ownership structure influences final recommendations.

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