Can private clients still trust that their bank’s advice is objective when that bank also owns a stake in the fund house behind the recommended products? The question is becoming more pressing across Europe, including Luxembourg, where private banks and fund distributors sit at the crossroads of European asset flows.
The recent move by Belfius to take a minority stake in Candriam, and BNP Paribas’s acquisition of Axa IM, highlights how blurred the lines are becoming between banks and fund managers. Similar trends are unfolding in Italy, with Banco BPM acquiring Anima, and in Luxembourg, where Indosuez Wealth Management is set to integrate Degroof Petercam and its fund arm DPAM—all part of Crédit Agricole, the main shareholder of Amundi.
The issue mainly arises when a private banker has an advisory relationship with a client who expects accurate fund comparisons from their advisor. “In an advisory relationship, the client receives suggestions from the private banker about which products or funds best suit their needs. The institution can then, based on its own policy philosophy, choose from a range of options: funds from all providers for independent advice, or funds from the group itself for dependent advice,” said Marc Van de Gucht, CEO of the Belgian fund federation Beama.
Naturally, a financial group prefers to sell as many in-house funds as possible. The associated revenues stay within the organization, and it’s both practically and administratively simpler. Thanks to naming conventions, clients usually have no doubts about which are the bank’s proprietary funds.
However, when banks become shareholders in external asset managers, such as Belfius with Candriam, a gray area emerges. Are Candriam’s products considered in-house or external funds? Belfius is not the only European bank acquiring stakes in fund houses. In Italy, Milan-based Banco BPM recently acquired fund house Anima.
According to Van de Gucht, the issue is less relevant in the two other types of client relationships: discretionary management and order execution. In pure order execution, the client is free to request the purchase or sale of any fund, without any advice from the banker.
In discretionary management, the private banker independently manages the portfolio without client input (though based on the client’s financial profile). In principle, this model could still allow for bias.
“No preferential treatment”
Belfius suggests it doesn’t matter. “All investment solutions offered to our clients are subject to an objective and independent analysis and are scored by dedicated departments within the bank, especially the Investment Strategy department,” the bank stated.
“Candriam and Belfius Asset Management, along with their solutions, are evaluated in exactly the same way as those of any other partner. Moreover, we maintain an open architecture. The criteria we use include: how well the solution aligns with our current market view (‘Convictions’), the absolute and relative quality of the solution, how well the solution matches the client’s risk profile, or the absence of a more favorable equivalent alternative for the client.”
And what about potential discounts on management and related fees? “Our priority is always to ensure clients benefit from a fair and competitive price. The current pricing structure for Candriam funds is already competitive. No changes are expected as a result of the transaction,” said Belfius.
“Chinese wall”
Financial ties—and sometimes identical branding—between banks and fund houses play no role in fund selection for clients, according to other banks as well.
For example, while JP Morgan Private Bank and JP Morgan Asset Management share the same name and office building in Luxembourg, they operate as two separate business lines under the American parent group. For the bank, Asset Management is just another fund provider. There’s a so-called “Chinese wall” between them. Asset Management has no issues with this, as the majority of JP Morgan funds are intended for external clients anyway.
The Belgian branch of BNP Paribas Asset Management is housed in the headquarters of BNP Paribas Fortis on Warandeberg in the heart of Brussels. There, too, the bank insists there is no preferential treatment. “We apply the same selection process to BNP Paribas AM solutions as we do to other fund houses that wish to partner with BNP Paribas. In-house funds and trackers are compared against market offerings,” the bank said.
“Our selection of fund houses includes, in addition to BNP Paribas AM, names such as Pimco, JP Morgan, Goldman Sachs, Amundi, BlackRock, and specialized asset managers. What matters in choosing asset managers is their complementarity to the internal offering. We aim for representation across various asset classes, regions, sectors, styles, currencies, and investment approaches (top-down, bottom-up, fundamental management, quantitative management). In Belgium, we work with more than ninety different asset managers.”
Interconnection
The entanglements between banks and asset managers are only expected to deepen in the coming months.
Attention now turns to the integration of bank Degroof Petercam and its fund house DPAM into Indosuez Wealth Management, a subsidiary of Crédit Agricole. That expanding French bank is also the main shareholder of asset management giant Amundi. The involved parties have remained tight-lipped about the upcoming structure.
The acquisition of fund house Axa Investment Managers by BNP Paribas, announced last year, is expected to be finalized by early July. Until that closing, banks within the BNP group do not yet consider Axa funds to be in-house products.
The six P’s of BNP Paribas
Fund houses that wish to partner with BNP Paribas must first be screened for financial stability and quality of operational execution, the bank explains. The selection process then follows six criteria:
People: the expertise and track record of the fund house
Process: the management team’s methodology, discipline, style, approach (top-down or bottom-up), access to AI, other resources and information, and risk and volatility controls
Portfolio: the assets being invested in
Performance: the fund’s performance, both absolute and relative to benchmarks and peers
Practical aspects: liquidity, fee structure, registration location, and transparency
Planet: the extent to which a fund considers sustainability factors or pursues sustainability objectives