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Bad times are gone: Dodds

Clients of financial advisers should feel confident that the “horrible times” of the finance company collapses are gone and will not be repeated, an adviser association boss says.

Monday, August 17th 2015, 6:00AM 8 Comments

by Susan Edmunds

It comes as a Napier couple suing their former adviser after losing about $1.6 million in a number of finance companies had most of the claim struck out.

Heather Smith and Andrew Martin lost money in Dominion Finance, Irongate Property and NZ Finance Holdings. They invested in 2005, 2006 and 2007.

They took a negligence case against Wellington advice firm McDouall Stuart.

The case came down to timing.  Last year, the defendants applied to have the claim struck out because it was out of time under the statute of limitations. An associate judge who first heard the claim refused because he disagreed.

The defendants then appealed, saying the losses were suffered when the investments were made, not when the companies collapsed. On rehearing recently, the judge said the associate judge was incorrect and struck out all the breach of contract and negligence causes of action because they were out of time.

Only one cause of action was allowed to continue, a claim in equity against McDouall Stuart on one of the investments. 

The couple said their adviser, Lloyd Singleton, had not exercised the standard of care and skill expected of a reasonably competent and professional adviser. As a result, they had made riskier investments than they otherwise would have.

They wanted $600,000 in damages, plus interest and costs.

IFA chief executive Fred Dodds said it was a horrible situation for all involved.

But he said it was a very different environment at that time -  prior to the finance company collapses, investors were chasing returns in a much more unregulated industry.

Financial advisers would have, in some cases, relied on ratings from firms such as Rapid Ratings, which entered the New Zealand market and rated 14 finance companies.

“Let’s learn the lessons. The world has certainly changed since then. All the [finance companies] had to do was put out a prospectus and an investment statement. But they were horrible times and they will never be revisited. You can’t blame the client [for taking the court action] $1.6 million is an awful lot of money.”

He said the industry could never say it was certain it had got rid of unscrupulous operators but it should be seen as positive that advisers such as David Ross and Tony Mount had been dealt with.

IFA members were given the message that business ethics should be a major consideration in their operations, he said.

There have been few court decisions on adviser negligence cases. Most have settled out of court.

Tags: finance companies financial advisers IFA

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Comments from our readers

On 17 August 2015 at 3:11 pm AFA Muggins said:
For the life of me, I cannot fathom why people keep referring to David Ross as an adviser, unscrupulous or not - he was a criminal running a Ponzi scheme.
On 17 August 2015 at 3:54 pm macca said:
"...finance company collapses are gone and will not be repeated..."
After the 1987 share market crash finance companies crashed, after the 2008/9 recession finance companies crashed, and you can bet your boots finance companies will again crash when the next big recession comes along.
On 18 August 2015 at 7:11 am John Milner said:
Although I am concerned that a number of advisers are still working as they always have, the greatest risk clients face that has never changed is themselves. This is an important part of why we're in business, managing emotions; fear, greed and their expectations.
On 18 August 2015 at 7:41 am MPT Heretic said:
You don't have to look to far in the current marketplace to see the next time....clients made riskier investments than they otherwise would have. Perhaps Mr Dodds should take a look at the actual holdings in one of the many 'Income' funds currently on offer and no doubt forming part of client portfolios
On 18 August 2015 at 7:52 am Pragmatic said:
Silly statements. Unfortunately the financial services industry will continue to attract rogues (as do most other industries). Nevertheless the vast majority of industry participants are good people doing the right thing for their clients
On 18 August 2015 at 8:36 am Tash said:
Oh dear, just when our industry should be making sense! If Dodds has been correctly quoted then he has done a massive disservice to our industry. Clearly those finance companies that have collapsed cannot do so again, ignores reality and to suggest this cannot happen again in the future is not helpful in growing understanding of financial and investment matters. Some investors will still lose money and some investments will still go badly.
On 18 August 2015 at 1:42 pm NoNoCents said:
Yes macca and, JBL in the 60s, Securitibank in the 70s were two big well publicised company collapses attracting money from the public. PSIS, DFC, the BNZ (nearly).
It will happen again. Some history here http://www.stuff.co.nz/sunday-star-times/business/776473/Lessons-of-the-past
On 18 August 2015 at 4:15 pm bluefintrout said:
Come on Fred, whenever there is a surplus of anything, an inefficient use will be made of it.
In 2004 there was a surplus of money in our economy and many finance companies became deft in dealing it to the public. Forget the regulations, a new generation of adolescent investors will emerge whose rapacity will make them easy prey to predatory usurious money-lenders. The subsequent decline in investor confidence in the market will start a fresh decline in short term funding to finance longer term debt.

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