BT Financial Group has rejected claims that BT Wrap lacks transparency and that it has refused to divulge crucial information needed to manage client portfolios.
The managing director of boutique fund manager Sirius Fund Management, Keiren Kelly, said he has spent six months trying to obtain information from BT Wrap in a series of email and letter enquiries that he said “have gone largely ignored”.
“I am still waiting for a reply,” Kelly said in a statement issued yesterday.
“I don’t know what they are waiting for.”
BT responded to Kelly, also by issuing a statement, in which it said that “BT Wrap welcomes communication with its clients and as such Mr Kelly’s queries have not gone unanswered”.
“We have been in touch with him on a regular basis since October via email and phone,” it said.
Kelly said that SFM was “one of the first to use the BT Wrap platform as a way to manage and deal in Australian shares on behalf of clients”, and that an attraction of BT Wrap was the role played by BT Portfolio Services acted as both trustee and custodian.
Frustration
In his statement, Kelly expressed frustration at the Westpac-owned BT Wrap, claiming that the first indication that something was amiss came last year, after the auditor of a client of his fund management firm asked him to substantiate the client’s holdings on BT Wrap.
In his statement, Kelly said that “not only did I not have any independent substantiation that the clients actually owned the stocks showing in their BT Portfolio reports, but also that these stocks had not been loaned to a third party”.
He said further investigation revealed that securities lending was made possible by an agreement between BT Portfolio Services and the Commonwealth Bank-owned Core Equity Services. Kelly said he has requested but not obtained a copy of that agreement.
“At this point, I have no idea what restrictions are in place in relation to Core’s dealing with our client securities held on BT Wrap,” Kelly said.
“I have no idea, for example, what happens if there is a settlement failure by Core Equity Services.”
Response
In response yesterday, BT said that BT Portfolio Services, as the operator and administrator of Investment Wrap and the administrator of SuperWrap, “does not facilitate securities lending programmes” as described in the ‘Custody’ section of Guidance Statement GS007 – a report prepared annually and audited PriceWaterhouseCoopers (PwC).
“BT has previously verbally confirmed to Mr Kelly that we do not do securities lending,” it said.
Kelly questioned why a Westpac-owned entity uses a CBA-owned entity for share trade executions, and said that “thing that amazes me is when I asked, ‘Is Core part of the ASX Fidelity Fund?’ BT said they don’t know”.
“That fills me with dread,” he said.
BT said the agreement is actually with Australian Investment Exchange (AUSIEX), a wholly owned subsidiary of CommSec – itself a subsidiary of CBA.
“This is a strategic outsource partnership that has been in place for many years,” BT said.
“This arrangement is transparent – BT is a settlement participant of the ASX in its own right and Chess sponsor for all direct equities held through BT Wrap, including Sirius [clients’] holdings.
“Separately, the administration of the BT Chess sponsorship is outsourced to AUSIEX, however the legal ownership of the legal assets remains with BT Portfolio Services and AUSIEX holds no title over this stock.
“Online trades executed through the platform are executed by AUSIEX, which is a Market Participant of the ASX, as the default nominated broker. As a Market Participant AUSIEX is covered by the National Guarantee Fund, not the Fidelity Fund, which is specific to the Futures Exchange.
“Commercial contracts are confidential documents.”
Fundamental questions
Kelly said his inquiries are “fundamental questions and I can’t understand why I can’t get an answer from BT”.
“I shouldn’t have to hound them. It looks like they are trying to hide something,” he said.
“I have been through a lot of booms and a lot of busts, and inevitably client funds are lost in busts either through unauthorised transactions, such as securities lending, or a weakness in the audit trail. It would appear that both of these exist in the trustee and execution arrangements of the BT Wrap account.”
In response to Kelly’s claims, BT also stated that it provides up-to-date online client level reporting that Kelly and his clients have access to at all times via an online portal. “In addition, BT provides annual, tax and all legislatively required statements to clients,” it said.
Kelly said that he had requested to see a copy of the GS007 report, but had been refused.
BT said yesterday that the report is “made available to clients on request, which provides independent substantiation of our internal controls and legal structure”.
“At the time of Mr Kelly’s original request this document was not yet approved by our Board of Directors, however can now be provided,” BT said.
“Mr Kelly was informed last week that we would send him the report once it was approved by the board.”
