In the DR last week, I took aim at the shoddy advice and fraudulent acts endemic in the financial planning and fund management industries. Before continuing down that path, let me be clear.
There are plenty of hard-working, honest people in the financial planning field. Unfortunately there are also a fair number crooks. And with commission based remuneration, even an honest planner may encourage you into trades and investments that aren’t in your best interest.
If you believe you have found an honest and hardworking financial planner, that doesn’t mean you should blindly trust them with your future wellbeing. Remember, according to Standard & Poor’s annual scorecard, 74.9% of active fund managers in Australia failed to beat the ASX 200 index over the five years to June 2014.
When it comes to funding your retirement, one bad decision can hurt you for life. You can do better than trusting a stranger with your future well-being. The fact that you subscribe to Markets and Money tells me you probably already know this.
Last week I mentioned the 3,240,000 results that pop up on Google when you type in ‘Australia financial planning scandals’. At that time results on the first page included names like CBA, NAB, Macquarie, and ANZ. Timbercorp didn’t crop up until the bottom of page four last week.
Today it’s back on the first page of results.
From the Financial Review (emphasis mine): ‘Investors in Timbercorp forestry scheme slapped with bankruptcy notices’.
‘More than 50 investors in collapsed forestry scheme Timbercorp have been slapped with bankruptcy notices as liquidators ramp up their collection processes… Three investors have been bankrupted so far this year by liquidators at KordaMentha who are acting for the big bank [ANZ] to recover loans taken out by Timbercorp investors to invest in the company’s forestry, olives and almonds schemes.
‘Many more people are expected to be sent under in the coming months as the matters wind their way through the courts, with 51 people having already received bankruptcy notices – the precursor to being bankrupted.
‘A further 61 people have not defended debt recovery actions by KordaMentha and are likely to also receive bankruptcy notices.
‘KordaMentha has filed a staggering 1,273 debt recovery actions against investors in the managed investment scheme that collapsed in 2009.’
As a quick recap of the Timbercorp meltdown, here’s this from The Sydney Morning Herald (my emphasis):
‘Financial advisers were paid exorbitant commissions to encourage investment in tree and fruit planting projects. Some of the people being sold these products were promised tax breaks for participating, some were tricked into signing blank forms. Often the trees were never planted but the financial advisers were always paid. What makes Timbercorp concerning is that it would never have been able to ruin so many lives if the ANZ bank hadn’t kept pouring money into it.’
Of course the blame doesn’t just lie with deceitful financial advisors. At the end of the day, before you hand over one cent of your money, the responsibility lies with you to know where that money is going.
Think about it. If your doctor tells you that you need a risky and expensive operation, you should always get a second — and third — opinion. Yet when it comes to finances, most people simply fork over their savings to a complete stranger with the right certificate tacked on their wall. This is your future we’re talking about. Your family’s future.
And believe me, the requirements to offer financial advice in Australia are a heck of a lot lower than they are to offer medical advice.
Don’t become one of the growing number of victims of poor or fraudulent advice. I can’t speak for the 1273 investors who have already been served with debt recovery action notices by KordaMentha. But I imagine they’d tell you to do your homework.
It’s been six years since the Timbercorp investment scheme collapsed. Yet these people continue to suffer the consequences. Their financial security, their very futures remain in limbo.
And, of course, the number victims of financial deception goes far beyond these numbers. On Thursday Business Day reported:
‘National Australia Bank will provide aggrieved customers with access to a highly respected law professor… following revelations it had quietly paid $14.5 million over the past five years to more than 750 customers who got bad advice from its wealth division.’
That’s another 750 investors who got swindled into making bad investments. Some of these people will undoubtedly recover. For those lucky few it may be nothing more than a setback in their retirement plans or other savings goals.
Others won’t be so lucky.
Following bad financial advice or employing the wrong fund manager can lead to years of heartache. It can lead to bankruptcy and find you living from pay cheque to pay cheque. Eventually you’ll depend on a meagre government age pension to put food on the table.
The best way to avoid this trap is to educate yourself. And take control of your own finances. At Port Phillip Publishing we’ve helped thousands of investors do just that. If you want to know more about our services, go here.
Managing Editor, Markets and Money