Does it?
Are (generally well-heeled) investors to be regarded as 'consumers' or 'business people'?
...
Navra clearly aimed his wares at the 'sophisticated investor' eg
http://somersoft.com/forums/showthread.php?t=45520 &
http://www.zoominfo.com/p/Steve-Navra/575847192
It's terrible that people lose money through bad investments, but beyond a certain point I'm not sure about the extent that government could or should protect people against their own greed, ignorance or bad judgement, given its poor track record.
Especially people who by proclaiming themselves as 'sophisticated investors' are effectively saying they're 'too cool for school' and the normal consumer protections.
I think the difference here Spiderman is that I believe a sophisticated investor would generally make their own decisions and not rely on advice from a financial advisor on how to invest.
Having met many of Steve's NFS clients, I would NOT consider many of them to be sophisticated investors - they were your typical "Mum and Dad" investors who relied completely (and sometimes blindly!) on the advice given to them by their advisor.
If you actually look at the links you provided, in context, there is no suggestion that Steve ONLY provided services and products to sophisticated investors - to me, it read like a marketing spiel intended to make Steve look like he was able to play with the "big boys".
There were a few people I know who were shareholders in NavraInvest but were not really clients of NFS, they didn't rely on NFS for advice and made their own decisions about what to invest in. Some of these people I would definitely consider sophisticated investors - they have a good understanding of the risks and know how to manage it well. I don't recall any of these people seeking to take legal action - they weren't given bad advice (except perhaps their own!).
While I am generally in the camp of "take responsibility for your own decisions", I also recognise that there are some people who really do not have an understanding of financial markets and the complexity of many of these financial products and relied almost completely on the advice of their advisor.
This is, of course, where things get really grey. On one side you could argue that if they didn't understand it, they should not have invested in it. On the other side, you could argue that this is what advisors are for - guiding people who need assistance selecting appropriate investments _because_ they don't understand enough themselves.
The argument about where the buck stops (poor choice of words - we all know it stops at the banks and never comes back
) is a difficult one and I see valid arguments on both sides.
The fact of the matter is - many people relied on the advice of an advisor. Now quite a few are close to being destitute, they lost everything, including the family home - many have had to come out of retirement because they no longer have any money.
Yes, financial markets do bad things - yes there are risks - but does that absolve the advisor of responsibility? Isn't it part of their job to be able to manage that risk for their client and make sure they aren't exposed in such a way that they potentially stand to lose everything?
I guess the argument comes down to trying to work out what the role of a financial advisor really is. If it is nothing more than suggesting investments with no responsibility if things go bad (because the client signed an SOA), then surely there also needs to be an assessment of whether the client really is capable of understanding the risks and making decisions when things go bad. I guess that comes under the process of determining the risk profile of the client though.
Of course, the counter argument to everything is that nobody complains when things are going well - indeed, clients will often be pushing their advisors to do more and get better returns. Will they then listen when things go bad and tough decisions need to be made?
I know of several situations where exactly this happened - a client refused to take the advice of selling down and taking losses before things became even worse, and they did get worse, and they lost everything. If you give a client advice and they refuse to take it, what more can be done?
At the end of the day, I believe that some of the structures used by NFS for their clients were far above the risk-profile I would personally consider acceptable (which is why I never invested using those structures) - in particular, many of the products or structures were not able to be unwound (without great cost) in the case where the proverbial hit the fan.
Personally, I've learned to be extremely wary of structured products where you are effectively locked in to a (long) fixed term and have very little flexibility in the situation where things go bad. Things change - life changes - markets change - the world changes ... being able to keep your head above water relies on your ability to adapt to those changes. If you've locked yourself into a commitment that you have very little flexibility with, you might well find yourself in water which is too deep to get out of.
In the case of many NFS clients, they were pretty much forced to remain invested through the worst of the GFC because unwinding their structures was not really an option - and when they did, they took massive losses at every step because it was already too late to avoid it.
In summary - I don't know what the answer is. But surely the outcome we have now is less than ideal?
