Investor surprised by lack of adviser lawsuits
A Whangarei engineer who took legal action against his financial adviser over a failed Bridgecorp investment says he’s surprised more investors haven’t taken the same approach.
Monday, August 27th 2012, 10:43PM 
6 Comments
by Niko Kloeten
Arthur Smith, who is just shy of his 70th birthday, is one of a number of investors who have gone after their financial advisers after being sold investments in finance companies that subsequently collapsed.
But while other cases involving AFAs Carey Church and Rodney Hartles have resulted in High Court judgments to be picked over by the legal fraternity and other advisers, Smith's High Court claim against his adviser's former employer ended up settling out of court.
Smith said he couldn't discuss the settlement due to confidentiality, but he said his initial action was in the Disputes Tribunal, where he argued the adviser had breached the Fair Trading Act by selling him a "faulty" product.
"To me it was reasonably obvious with the Fair Trading Act and Consumer Guarantees Act available to people, but no-one thought to sort of suggest that the products weren't up to scratch. I tried all the normal banging on doors; I was determined make somebody accountable."
He ended up being awarded nearly $15,000, which he used to fund a wider case against the adviser's employer. Although he wouldn't name the company, Good Returns understands from other sources that it was Tower Financial Advisory Services.
Smith said like many fellow finance company investors he knew very little about investments so was reliant on getting good advice.
"The advisers generally end up with you having so much trust in them because they are doing something you know nothing about. If they tell you to jump you jump," he said.
However, he said he was surprised more finance company investors hadn't taken action against their advisers.
Some investors were put off by cost and a number of people he'd spoken to hadn't even heard of the Fair Trading Act, he said.
Smith also had strong words for the finance company directors and the regulators who presided over the collapse.
"If you look on the back of a prospectus it says it's approved by a government department; why aren't they liable?"
Niko Kloeten can be contacted at niko@goodreturns.co.nz
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Comments from our readers
I went through every single company and advised him to diversify as his current strategy involved a lot of risk (with companies who had flimsy balance sheets), but he made the decision to stay where he was, no doubt blinded by the returns and the promises of his current adviser (if I recall correctly, at Money Managers).
I often wonder whatever happened to this man and his $2m, sadly I bet he doesn't have a lot of it left. So yes, some people are the architects of their own downfall, but they also bought into a lot of BS from advisers who happily flogged these investments on the back of very nice commissions.
I did the same exercise for my father-in-law a few years ago - and his investments were in equally bad shape - by the time I got involved he'd already been stung 3x but we managed to save his other funds. A lot of these older people don't understand modern day investments and rely on (and pay) advisers to help them. Surely they have a duty to make sure the investment fits the client?
just my 2cts worth:
rule 1: know your client/prospect.
rule 2: if you think they look like trouble, you're probably right, dump them first, before trouble troubles you.
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