The fact that the Securities Commission have made a decision to exclude organisations and advisers promoting property investments from the requirements under the Financial Advisers Act is outrageous.
It’s hard to fathom how a decision of this nature could possibly have been made, given the past record of over confidence and hence over investment in property being one of the major drivers behind the global financial crisis.
So much confidence in property values only ever going up, that most of the failed finance company’s promoted themselves as only investing in property, it didn’t matter what sort, only that it was property! Such was the confidence, one of the largest insurance companies in the world couldn’t write enough credit default swap business, and ended up being bailed out. Such was the confidence, banks and lending institutions were more than happy to lend over 100% on a LVR.
A leveraged property investment has a significant amount more risk attached to it than an unleveraged diversified risk profiled investment. There are considerations of liquidly risk, interest rate risk, capital risk, specific risks, over concentration in a single asset class risk, to name a few and now in Christchurch and potentially throughout NZ, natural risks and disasters which have led to rent risks, insurance risks and the like, and there is now no legal imperative to disclose any of this or bring it to the potential investors notice? To treat those promoting one form of investment over another without a prescribed process for all personal investment leaves me with little faith in the Securities commissions understanding of the advisory industry.
Under the FAA anyone promoting property syndicates and other property schemes are exempt from prosecution from doing what every other adviser needs to do, and that’s explain risks associated with different investment classes. Every adviser registered as an AFA is liable for failing to put the interests of clients first, log over 20 hours of professional development, annually, keep records for 7 years, be part of a disputes resolution process, be audited by the securities commission, produce disclosure documents setting out qualifications, and importantly any vested interests, disclose the fees that are paid through a supplementary disclosure document. All of this on top of doing a complete analysis of investment options available to the client, risk profiling and providing evidence and calculations for each option and the rationale behind any assumptions made.
If the securities commission is now about to allow every charlatan that can’t meet the above due process prescription and allow such people to operate in the investment property market, then we as an industry will again continue to bought into disrepute as the people operating in this market are likely to hold themselves out as property investment advisers or financial advisers of some sort.
In my view, if the objective of the securities commission is to increase financial literacy in NZ then this is a step in the wrong direction.
All financial advisers, the IFA, and any other body which adheres to the principals of professional due process in investment advising need to object strongly to this move. There appears to be a lot of vested interests groups who seem to have found favour with influential people in the securities commission to push their own book.
Phil HarrisPartnerCamelot NZ Ltd Partnership
On 7 April 2011 at 7:30 pm The property investment ‘loophole’ - Phil's Blog said:
[...] GoodReturns Blogs « Outrageous to ban property investment [...]
On 8 April 2011 at 12:58 pm Andy said:
Phil - I am a mortgage broker in Christchurch, and I have done a fair bit of property invesment financing. I agree with you. It is far too easy for the charlatans to get into the industry, and even easier for them to destroy the good name that many of us have. However I see the other side of the equation too - where do we draw the line between investment advice, recommendations, or information. I use respected accountnats to verify my suggestions. However - accountants are also excluded from the legislation. So too are solicitors. And real estate agents, and valuers, and all the other professionals we need to rely on. Where do we draw the line on financial advice? What about jewellers offering diamond rings and a "good investment"?
YEs Phil - I agree with you. But where do we draw the line?
On 8 April 2011 at 10:52 pm Forthright said:
A short history of NZ’s unforgettable property investment scene; Metropolis Bonds, Flat Rock Forest, Auckland Hilton Hotel, St Laurence Property Development, Compass Bonds, Urbus property syndicate consolidation into junk bonds, Money Managers 26 of 58 property syndicates returning cents in the dollar and the biggest rip off all Bluechip.
Learn from the mistakes of the past or simply repeat history.
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