westpoint and financial Planners

[Nigel Kibel]

On Inside business this morning the chairman of ASIC was interviewed regarding the collapse of Westpoint. It seems that over $300,000,000 of investor funds have been lost in the Mezzanine finance division. The problem for Asic is that the community has been continually told that you can count on advice from financial planners. In fact it is illegal to give advise if your are not one. Even an accountant cannot give advice even though in most cases they are far better educated than the average financial planner.

It has been acknowledged that many of these planners were paid commissions of 10%. Clearly this advice was given based on how much commission the planners were making rather than how good the product was. I spoke to someone recently who told me that their planner told them that there money was safe. They have lost in excess of $300,000.

There are people who suggest that ASIC should control the property industry. That is clearly not the answer. If you are spending your own money then you should do your own research. If something looks to good to be true then it is.

Mezzanine finance is a top up that the developers cannot borrow from the bank. In other words a bank may lend a developer 65% of the project subject to presales and the need say an extra 10% raised by investors. It also means that if something goes wrong you are last in line to receive any repayments. This was always a high risk investment Financial planners do not normally recommend property because they do not much money from it. However with direct property investment, even if the market falls, the property still retains a large percentage of its previous value and no matter what market conditions are like today, in time the value will improve. If you invest in shares or a product like Mezzanine Finance and the company goes to the wall you will probably loose all your money.

Think carefully where you spend your money, do your own research, until you are comfortable that you are making the right decision. After all at the end of the day it is your money.

 

[arriety]

I was hoping someone would start a thread on the Westpoint collapse especially as there as been so much discussion on this forum on using financial advisors. It seems that ASIC will be investigating those financial advisors who advised people to morgage their homes to put their money into Westpoint. One financial expert on radio implied that some elderly people were greedy because they had wanted a quick and easy investment and had taken the advice of their financial advisors to morgage their homes. I know they were probably naive but surely not 'greedy'. And the financial advisors wouldn't be expecting a crash would they? So they were also expecting easy rewards for themselves and their clients.

 

[Nigel Kibel]

westpoint

It is not a matter of greed, the problem is that it have been pushed that financial planners are quialified to give you the best advice. The only financial planners I would trust are those who charged you a fee but did not take a commission. A little like a buyers advocates. It is clear that this product was pushed because high cmmissions were being paid out. The planners new that the percentage paid out to the client was around 12% and 10% for the planner. This should have sent out warning bells but most of the planners told there clients that there was little risk. This is quite different for someone who pays to much for a property. These people requested advice, they trusted the planner and now many of these people have lost a lot of money.
Question anyone who is giving you advice. In many cases just by talking to them you will quickly determin what there knowledge base is.

 

[Ricardo29]

"buyer beware"....as always.
fin.planners should be used as an extra learning tool, a second/third/fourth opinion, and not as the be all and end all for making investment decisions.
what one does with their money, should be their decision, no one elses.

 

[pmcintosh]

Ad in Saturday's Courier Mail by local firm of solicitors seeking all those aggrieved parties to Westpoint to take class action against financial planners, accountants, etc. that gave clients advice to buy into this deal. Sign of the times - give advice and take a commission at your own risk. You will be answerable!!

 

[Ausprop]

is it really the financial planners fault? It was financial mismanagement (is it being referred to as fraud?) by Westpoint that caused this problem, not so much the projects themselves. Then for ASIC to talk about pursuing "non-commercial commissions" is a joke in what we often think of as a free enterprise society. Can someone tell me how you can enter into a business agreement that works for both sides and without duress and then have the agreement labelled as 'non-commercial'? I fear the planners are being made scapegoats here.

 

[toony]

Run out of Business

Any financial planner who suggested their clients mortgage their house and invest in mezzine finance deserves to be driven out of business.

The same goes for those financial advisors who suggested their clients invest in mezzanine finance with money they could ill-afford to loose. Sure a small part of your portfolio may be worth it, but not money you cannot afford to loose. Those guys deserve to be driven out of business. I look forward to ASIC's investigations.

 

[Ausprop]

if the stock market collpased tomorrow would you say the same of any planner that took a commission for investing in managed funds? if you don't want risk, buy govt bonds - but even they carry a fair degree of risk (what's a greenback really worth these days??)

 

[toony]

The stock market is a completely different type of investment from mezzine finance.

 

[Ausprop]

riskier IMO - I have lost more on the ASX than my involvements with mezzanine. At least the underlying asset of mezzanine is a stable asset class.

 

[grossreal]

Hi All
couple of things
first there is a post under where to buy that gives my views with regard to west point.
so arriety it has been there for a while.
but to give a different view there is nothing wrong with mezzanine funding I am involved in it and if done correctly works very well.
yes Ausprop is right its not the funding thats the problem,
the product you are funding against if the value is sound then you don't have a problem I work both sides of the street on this one as a user and a supplier of mezzanine funding.
so I know a little bit about it.
it depends on how high the risk depends on the interest levels and if I'm not happy with the deal just drop the ball.
I know the risks and the property that we are lending against, this is very different to the westpoint people who didn't know the type of funding they were getting involved in and that these funds because the are so aggressive in the market that they were going for the highest risk and the returns were the highest.
And there are still alot of these funds still very active in this market place.
as I posted in the other section when this has started to wash up you will find more then one banguru is this soup and henry kaye will look like he was selling dunny's.
we are talking about a market place with the highest return of any market That I know,unregulated or governed,in wa the max return is 18% with no limit in any other state.
with multi billion dollar funds/trusts and most building site over 10 units would have some sort of mezzanine funding component, not including business acquestion and equipment components,
I am a very little fish in this market probable closer to an egg then a minno but even for this little fish it is a very good market to swim in.
the guys that swim in this market are the sharpest pensils in the bag I know lots of other minno's like me that are barristers(macquaries street)/accounants (big end of town)/seed capitalist/and funds listed and unlisted, mix in there bank of china,hsbc out of singapore and deuch bank and you can see this market is and always has been a corner stone of finance.
The reason that it has been pushed from the back room to the front page of the papers is very simple the banguru's of this world have packed up there bags with regard to selling units and have moved to a new address and now they are selling education/investment clubs and have moved into the mezzanine finance area.
unlike the unit sales area that is regulated they can swim very fast and are fuelled by high returns,
can we stop them,
my answer is can you stop the qld cane toad from moving south and killing everything it touchs.
to both not in a hurry.
you can't regulate this market as its a negotiation done around a table that has no rules except the ones that the people at the table agree to.

 

[thefirstbruce]

I have been burnt on seed capital and mezz finance.
The only seed or mezz I shall ever lend again will be to a project I control.

IMHO, it is folly to lend money unsecured. There is no risk control in doing so.

As for a class action against Westpoint, watch the lawyers bills grow, and wait at least 3-5 years before there is a result....

I think it would be a good idea for ASIC or something with some real teeth, to heavily audit any company attempting to raise mezz finance above say $500k. Prospectuses are useless even misleading documents IMHO.

I think everyone should be aware of how profoundly business ethics have been eroded in the last 30 years. Unfortunately, many older AUssies have no idea, until it is too late.

 

[Ol School Skata]

I can understand Financial Planners advising clients to put money into mezzanine schemes, but the bottom line from a planner's perspective is "Does this investment, with its inherant risks, suit my client's risk profile?"

If a planner has the correct paperwork in place then they should have no dramas. If they don't, then be afraid, be very afraid.

I have seen advertisements today from solicitors wanting to find any clients who lost money in this collapse and were advised by a financial planner among other supposed professionals.

Time will tell

OSS

 

[Ricardo29]

stupid question if i may....

why would you sue/take legal action etc against a company that has gone broke???????
wouldnt be a lot of point would there.....who's going to pay?????
(unless the gov chips in with some rescue fund, and i dont believe this warrants it.)

 

[Ausprop]

they don't want to sue Westpoint (as you say, they are broke) but want to sue the guys who advised people to invest in them. I agree that if they have given poor advice in light of their clients risk profile then yes they should be dragged over the coals.

 

[Nigel Kibel]

westpoint

One of the main points that I am trying to make is that a number of financial planners told there clients that there money was safe. Clearly that was never the case. I am sure there are some very good financial planners around. There are also many who are sales people with little experience or knowledge. However there is a perception that because a financial planner can give advice it must be correct.

 

[alexlee]

Surely financial planning is a two way street? The investor can't plead stupidity and say 'I thought it was safe because my fin planner told me so.' Mezzanine finance is a legitimate but riskier (compared to, say, term deposits) form of investing. As usual the media picks the most extreme examples of the Westpoint investors. I read about someone who had put most of their nestegg in Westpoint.

I'm not saying the financial advisers are blameless, and Westpoint is clearly dodgy, but if the investor doesn't bother to get educated on the basics of diversification, types of investments, your own risk level, etc the investor has to take some responsibility too. You can't just say 'I'm just a simple battler who's never been told about finance'. Tough. The world's changed. You don't have a pension anymore so you have to learn about finance. Go to the library and get a few books out. If you don't learn to swim you're going to get eaten by sharks.
Alex

 

[tropic]

Surely financial planning is a two way street? The investor can't plead stupidity and say 'I thought it was safe because my fin planner told me so.' Mezzanine finance is a legitimate but riskier (compared to, say, term deposits) form of investing.

I think if you pay someone for a professional advise on your finance, the person that is giving the advise need to do some research (due diligence) on your behalf.
It is unfair to blame the investors that got tricked into this. It's like when you are going to a doctor for a medication you expect the doctor to know about the medicine that is prescribing. Surely you can't expect every patients to check the contents, manufacturer etc of the medicine, that is the doctor's job.

 

[thefirstbruce]

As alluded before, financial advisors aren't accountants or developers, so it is ridiculous to expect them to have the acumen to know whether a company's financials or business plan are sound.

Further, accountants take no responsibility for the plausibility of the data they are given by their clients, stock brokers take no responsibility for their recommendations flunking, lawyers take no responsibility for giving wrong or incomplete advice...

 

[Nigel Kibel]

financial planners

I think that some of you are missing the point. I am not talking about serious investors like many of the people on this forum. I am talking about the average person who may believe because of the information put out by ASIC that financial planners are the only people who can offer advice. Therefore for many people who go to a planner and they were then advised to invest in Westpoint because there money was safe they did so. Of course they should have done there own research. As a property researcher I find fee people research anything before theyu acquire property.