Australia: White Collar Crime Paradise

I don't often start threads outside of the Announcements and Site News forum, but after being sent a link to this ABC News article I felt compelled to put it out there for discussion. My first instinct was to post it in the How to identify an investment scam thread, but after some consideration decided that it deserved a thread of its own.

Australia a paradise for corporate crooks says regulator

By business reporter Sue Lannin

The boss of the corporate regulator says Australia is too soft on corporate criminals and increased civil penalties including more jail terms are needed.

The Australian Securities and Investments Commission chairman, Greg Medcraft, told journalists at a Walkley Foundation function that "Australia is a paradise for white collar crime."

"[In] most countries the penalties are two to three times the amount gained or lost," he told the function.

"Often [in] Australia it's actually worthwhile breaking the law to do the trade. You can't have that."

Click to expand...

Read more: http://www.abc.net.au/news/2014-10-...e-for-corporate-crooks-says-regulator/5832538

In recent years I have watched the dramatic proliferation of investment scams preying on the naive and the vulnerable and have been amazed by the way they are allowed to operate with impunity. Neither ASIC, the ACC nor the Financial Ombusman Service seem interested in investigating these shady companies.

Meanwhile, the multitude of call centres, staffed by professional telemarketers flogging all kinds of dodgy schemes are in overdrive, taking advantage of the fact that they will not be held to account for pillaging the savings of countless ordinary Australians.

Something needs to change, but nobody seems willing to take the first step.

Joe Blow said:

I don't often start threads outside of the Announcements and Site News forum, but after being sent a link to this ABC News article I felt compelled to put it out there for discussion. My first instinct was to post it in the How to identify an investment scam thread, but after some consideration decided that it deserved a thread of its own.



Read more: http://www.abc.net.au/news/2014-10-...e-for-corporate-crooks-says-regulator/5832538

In recent years I have watched the dramatic proliferation of investment scams preying on the naive and the vulnerable and have been amazed by the way they are allowed to operate with impunity. Neither ASIC, the ACC nor the Financial Ombusman Service seem interested in investigating these shady companies.

Meanwhile, the multitude of call centres, staffed by professional telemarketers flogging all kinds of dodgy schemes are in overdrive, taking advantage of the fact that they will not be held to account for pillaging the savings of countless ordinary Australians.

Something needs to change, but nobody seems willing to take the first step.

Click to expand...

Many years ago I lost $10,000 under a scheme known as the Mortgage Trust. More recently I was fleeced $30,000 under a more sophisticated scheme, the IMF Trust. Essentially they were both Ponzi schemes.

Did I feel affronted ...yes. Did anyone give a stuff...no. The class action for the IMF has been dragging on for years with only a glimmer of light at the end of the tunnel.

My point is, that these days the full force of the PC police, the news media and the social media is used in seeking out individuals or groups who may consider they are affronted by drunken rants on trains or buses, graffiti on a mosque walls, or unwise words on hacked private emails. It doesn't matter if you are not a bigot or a racist, it only needs for someone to perceive you to be. There is no right of redress. Better still if they can be captured on film on a mobile phone, then it will go viral and the participants exposed to ridicule and worse on the world stage.

You say "Neither ASIC, the ACC nor the Financial Ombusman Service seem interested in investigating these shady companies".

Well, neither is the public, there is no confected moral outrage. It is only a matter of time before the term "Nigerian scam" is considered racist.

Considering the current Govt has decided against a royal commission into the CBA scandal, and it could have easily been extended to Mac bank too, I don't see much happeneing.

The lack of public outrage gets to me as well.

We're forced to save nearly 10% of our income yet sem to get more protection signing up for internet or a mobile phone.

Good article in today's Age about how the banks destroyed one man's fortune through bad advice and how they are getting away with it.

It's dangerous going to a financial advisor.

Maybe if politicians were forbidden to participate in mezzanine finance companies, development companies and banks, for life there might be an incentive to protect the public against the white collar criminals.

I suspect there will be far more Mandarins operating in the market before a govt decides to act in the interests of its constituents.

Tisme said:

Maybe if politicians were forbidden to participate in mezzanine finance companies, development companies and banks, for life there might be an incentive to protect the public against the white collar criminals.

I suspect there will be far more Mandarins operating in the market before a govt decides to act in the interests of its constituents.

Click to expand...

What exactly do you think a government should do to completely protect the interests of its constituents (in the financial advice arena)?

Julia said:

What exactly do you think a government should do to completely protect the interests of its constituents (in the financial advice arena)?

Click to expand...

Legislate against conflicts of interest by politicians would be a good start. The opportunity of parachuting them after public life into depts. or companies that are "protected" gives them no incentive to tighten the rules against what could be criminal profiteering.

Julia said:

What exactly do you think a government should do to completely protect the interests of its constituents (in the financial advice arena)?

Click to expand...

Sorry I know this wasn't directed at me but I can tell you what they shouldn't do, they shouldn't have watered down the consumer protection laws that Labor put in place that offered some protection to consumers seeking financial advice.

Tisme said:

Legislate against conflicts of interest by politicians would be a good start. The opportunity of parachuting them after public life into depts. or companies that are "protected" gives them no incentive to tighten the rules against what could be criminal profiteering.

Click to expand...

That on its own will not be sufficient to ensure no client of a financial planner ever gets ripped off again.

overhang said:

Sorry I know this wasn't directed at me but I can tell you what they shouldn't do, they shouldn't have watered down the consumer protection laws that Labor put in place that offered some protection to consumers seeking financial advice.

Click to expand...

Thanks, overhang, your view is always welcome.
I agree with you. All this time later, I'm still stunned that it should have been necessary to state in writing that an adviser must 'act in the client's best interests'. Any basic moral compass would dictate that to be a given.

I'm still interested to know what the government should actually put in place which will ensure people are protected. So far no mention of improving educational standards, or replacing the ludicrously simple open-book, multiple choice 'exam' which allows people to call themselves financial planners in an equally ludicrously short time.

Even if governments were to legislate to make qualifications more rigorous, how is it possible to legislate against human greed and amorality? (On the part of both planners and clients.)

Isn't there also some responsibility on clients as individuals to acquire even basic financial literacy, if for no better reason than to have the capacity to evaluate 'professional advice'?

Using Storm Financial as an example, it could be asserted that whilst the market was going up Storm were indeed acting in the best interests of their clients. Certainly the clients were happy, the double leveraging making them big profits. But when the market turned it all fell in a heap.

Using CBA as an example, Hockey's mother in law lost a fortune through bad advice. Luckily her son is a powerful man and CBA gave some back and ended up sacking him. Pity those people who don't have a powerful politician to save them.

http://www.smh.com.au/business/bank...-rogue-financial-planners-20130604-2nnhb.html

Because Fairfax published this, CBA will no longer advertise with the company....not much contrition.

His mother in law must think he is a bum.

Julia said:

That on its own will not be sufficient to ensure no client of a financial planner ever gets ripped off again.

Thanks, overhang, your view is always welcome.
I agree with you. All this time later, I'm still stunned that it should have been necessary to state in writing that an adviser must 'act in the client's best interests'. Any basic moral compass would dictate that to be a given.

I'm still interested to know what the government should actually put in place which will ensure people are protected. So far no mention of improving educational standards, or replacing the ludicrously simple open-book, multiple choice 'exam' which allows people to call themselves financial planners in an equally ludicrously short time.

Even if governments were to legislate to make qualifications more rigorous, how is it possible to legislate against human greed and amorality? (On the part of both planners and clients.)

Isn't there also some responsibility on clients as individuals to acquire even basic financial literacy, if for no better reason than to have the capacity to evaluate 'professional advice'?

Using Storm Financial as an example, it could be asserted that whilst the market was going up Storm were indeed acting in the best interests of their clients. Certainly the clients were happy, the double leveraging making them big profits. But when the market turned it all fell in a heap.

Click to expand...

Hi Julia,

You can't legislate against stupidity; not even against lack of expertise on the part of clients.
Those Mum and Dad investors that get fleeced the most aren't seeking advice because they're greedy, but because they want to grow their life savings. Which is quite a legitimate wish IMHO.
If some dodgy smart Rs dazzles them with an official license to advise, he should be held responsible if the outcome turns out a loss rather than what they were expecting.
You, as an educated person with the ability to do the Math and add percentages, know outrageous profits to be hollow promises; but you can't expect the same critical thinking from a retiree who still has to take his shoes off when the numbers go past ten.

It would therefore be reasonable to legislate that any licensed advisor or authorised trainer of financial matters be responsible for the consequences of his/her advice or teaching. A hidden clause about "past performance is no guarantee for future" and similar rubbish about Forex and CFDs carrying the risk of losing more than 100%, should be no excuse or reason to shirk responsibility for big promises in the marketing and advertising material.

By all means, set a threshold for the amount at risk - maybe as a percentage of a client's available funds. That would still allow the Fat Cats and "Professional, sophisticated investors" to chase higher returns with higher risks. It's a helluva difference whether half a Million lost represents 80% of a retiree's Super, or James Packer's lunch money.

How about financial advisors being required to invest the same money as their clients in the investments that they recommend ?

Sort of similar to airline executives being required to fly on their own airlines. They would make sure the maintenance was done properly then.

In most professions or trades, if you make a mess of the client's work then there is some degree of responsibility to put it right, including any associated consequences.

An electrician, for example, needs public liability insurance as a basic condition of hold a contractor's license. It's not optional, it's a legislated requirement. And then there's Workplace Standards ready to remove the license of anyone who does shoddy work, regardless of whether or not it causes an actual fire or shock.

I get the distinct impression that financial advice is pretty lightly regulated compared to other industries and yet it has massive consequences for individuals if things go wrong.

pixel said:

Hi Julia,

You can't legislate against stupidity; not even against lack of expertise on the part of clients.
Those Mum and Dad investors that get fleeced the most aren't seeking advice because they're greedy, but because they want to grow their life savings. Which is quite a legitimate wish IMHO.
If some dodgy smart Rs dazzles them with an official license to advise, he should be held responsible if the outcome turns out a loss rather than what they were expecting.
You, as an educated person with the ability to do the Math and add percentages, know outrageous profits to be hollow promises; but you can't expect the same critical thinking from a retiree who still has to take his shoes off when the numbers go past ten.

Click to expand...

I understand your point, but don't accept that even the most unsophisticated person cannot be expected to understand that if you borrow 90% of the value of your home in retirement, buy shares with the proceeds, and then take out a margin loan on those shares you are taking a hell of a risk, not just with the shares but with your home.

It might be a reasonable strategy when someone is 30 with many years of working life ahead, but not at 70.

That is all I mean when suggesting people need to acquire for themselves some basic level of financial literacy.

You refer to me as an 'educated person with the ability to do the Math (in Australia we usually say maths, don't we?), but I have had no training in finance whatsoever. I've done nothing in terms of educating myself that any other average person cannot do. Most just can't be bothered.

I've many times before commented on the number of even just my own friends who have doctorates in their chosen fields, but whose eyes just glaze over when you suggest they take even a baby step toward understanding how to make the best of their financial situation.

It would therefore be reasonable to legislate that any licensed advisor or authorised trainer of financial matters be responsible for the consequences of his/her advice or teaching. A hidden clause about "past performance is no guarantee for future" and similar rubbish about Forex and CFDs carrying the risk of losing more than 100%, should be no excuse or reason to shirk responsibility for big promises in the marketing and advertising material.

Click to expand...

Seems reasonable, but is it absolutely in an environment as unpredictable as financial markets?

Smurf below gives the example of tradespeople being required to hold the appropriate insurance and to adhere to a set standard. Presumably this set standard is something easily quantifiable by objective measurement.
Fairly clear for some supervising body to declare an electrical installation, e.g., is not correctly done.
Is it so clear for financial advice?
As I mentioned earlier, Storm could be said to have offered valid advice to their clients in the environment of a rising market, so apparently no problem there, despite the huge risk accepted by clients of mortgaging their very homes and all their super/savings.
But that advice turned to dust when the market fell, clients being offered no exit strategy.

So when it comes to attributing blame, how does it fall? Solely with the advisers? Also with the clients who, even in the most generous of descriptors, could hardly have reasonably concluded that it was a safe, risk-free strategy?

By all means, set a threshold for the amount at risk - maybe as a percentage of a client's available funds. That would still allow the Fat Cats and "Professional, sophisticated investors" to chase higher returns with higher risks. It's a helluva difference whether half a Million lost represents 80% of a retiree's Super, or James Packer's lunch money.

Click to expand...

I'm not sure what you mean here. Are you saying that if I go to a financial planner and say I have one million dollars to invest, he has to tell me "sorry, I am only allowed to advise you how to invest half of that amount"?
I may be misunderstanding your intent.

SirRumpole said:

How about financial advisors being required to invest the same money as their clients in the investments that they recommend ?

Click to expand...

I can't see that that would be remotely practical. If a planner has 5000 clients, you are suggesting he is personally obliged to invest in all the products engaged with in all of those 5000 clients?

Sort of similar to airline executives being required to fly on their own airlines. They would make sure the maintenance was done properly then.

Click to expand...

Doesn't seem like a valid analogy to me, Rumpole.
You might as well suggest that a criminal lawyer should be required to engage in any strategy he recommends to his clients.

Smurf1976 said:

In most professions or trades, if you make a mess of the client's work then there is some degree of responsibility to put it right, including any associated consequences.

An electrician, for example, needs public liability insurance as a basic condition of hold a contractor's license. It's not optional, it's a legislated requirement. And then there's Workplace Standards ready to remove the license of anyone who does shoddy work, regardless of whether or not it causes an actual fire or shock.

I get the distinct impression that financial advice is pretty lightly regulated compared to other industries and yet it has massive consequences for individuals if things go wrong.

Click to expand...

Seems like a good principle, smurf, but - as above - I'm not sure that it could quite equally be applied to the financial advice industry.
I might be wrong, of course.

I understand your point, but don't accept that even the most unsophisticated person cannot be expected to understand that if you borrow 90% of the value of your home in retirement, buy shares with the proceeds, and then take out a margin loan on those shares you are taking a hell of a risk, not just with the shares but with your home.

Click to expand...

It would seem you haven't met really "unsophisticated" people yet. Even someone with a PhD in, say, Linguistics or Archeology may nave trouble with percentages and budgets; or they simply lack the time and inclination to deal with those matters. So they hand it to a financial expert - just like you and I would call an electrician to install a ceiling fan, or take our pet to the vet. I can't see the slightest difference to Smurf's comparison.

To an electrician, plumber, surgeon, ... it doesn't make the slightest difference whether their client understands electric currents, knows which pipes carry hot and cold water, or understands the inner workings of a knee joint: They each do the best they can in the client's interest. I can't see any reason why a fnancial adviser or teacher should be allowed any more slack when dealing with their clients.

Actually, I know two brothers, both PhDs, one of them turned Financial Advisor; he handles his brother's affairs because they both know who of the two is better trained for the task. The financially passive brother has complete confidence, even during the GFC. The critical element that makes it work for them, and which is missing in the cases we're talking about in this topic, is one of moral compass and integrity: The finance-savvy brother has it in spades.

Julia said:

I can't see that that would be remotely practical. If a planner has 5000 clients, you are suggesting he is personally obliged to invest in all the products engaged with in all of those 5000 clients?

Click to expand...

Is he going to give different advice to 5000 clients ?

If he was giving the best advice to all of them, it would be the same advice.

Putting ones own money where ones mouth is is the best indication that the advisor actually believes the advice he is giving is correct.

SirRumpole said:

Is he going to give different advice to 5000 clients ?

If he was giving the best advice to all of them, it would be the same advice.

Putting ones own money where ones mouth is is the best indication that the advisor actually believes the advice he is giving is correct.

Click to expand...

This is not true and it is not the opinion that the courts of the Financial Ombudsmen holds. The above example you just gave is often called 'cookie cutter' advice in the industry and creates large problems.

A financial planner is required to assess each individual clients circumstances and recommend products and strategies based on that clients circumstances.

A client that is 60 years old, who is looking to transition to retirement and has a significant asset base but a very low tolerance to risk is going to get completely different advice to a 35 year old who works in the mines and is looking at a high risk strategy to build wealth over time as they currently earn a large amount of income.

A gearing strategy may be completely appropriate for one client but not another, just as term deposits or investing into stocks are appropriate for different clients in different situations. More importantly for your original post about the advisor going into the products he recommends, those products may not be appropriate for the advisers situation and tolerance to risk.

This all comes back to when Julia originally stated that advice may be appropriate in a bull market but not a bear. This is not the way the courts or the financial ombudsmen see it.

An adviser will be found to have given inappropriate advice if that advice was not likely to satisfy the critical aspects of the clients goals and circumstances. Whether the recommended strategy and products perform as anticipated is a whole separate issue to whether or not the advice was appropriate. It more or less comes down to what sort of risk the client is willing to take on and is the strategy and products recommended in line with their financial goals and ability to afford that strategy.

If the adviser is then found to have given inappropriate advice in a court or at FOS then the amount of compensation payable is looked at, this is the only time where the actual performance of the investments matter.

The adviser can only be expected to provide advice on what they know at the time, in no way are they found to have provided inappropriate advice if the advice they provided was likely to place the client in a better situation because the advice was in line with the level or risk the client is prepared to take, in line with their goals, it was affordable for that client and all the fees, commissions and risks were disclosed to that client.

On the flip side, it can actually be found that advice was inappropriate whether or not the client has lost any money at all, but obviously the client isn't going to complain so you won't hear about this. This is what should be picked up in audits.

There are many publications where FOS for example express the view that an adviser would not be held responsible for market downturns over the GFC. The adviser would only be held responsible if they put the clients into strategies which had unacceptable amounts of risk.

pixel said:

It would seem you haven't met really "unsophisticated" people yet. Even someone with a PhD in, say, Linguistics or Archeology may nave trouble with percentages and budgets; or they simply lack the time and inclination to deal with those matters. So they hand it to a financial expert - just like you and I would call an electrician to install a ceiling fan, or take our pet to the vet. I can't see the slightest difference to Smurf's comparison.

Click to expand...

I get the point, pixel, as I've already said, and there's no point in arguing over the detail. But if I had an electrician come to instal a ceiling fan and he said "oh don't worry about that loose wire hanging out - it'll be safe" then I wouldn't believe that. Likewise if the vet said there was nothing wrong with my dog when she is limping, then I'd not be having that either.

This is all I mean when I say clients themselves have some responsibility in not accepting advice, as in Storm, which clearly - in their retired circumstances - didn't constitute a safe strategy.

Ditto anything which looks too good to be true. If someone says "I can get you a return of 15% on those funds" when you've asked for a safe haven for your cash and explained that your paramount concern is that the money be safe, then does that really make sense to you when the going at call rate is 4% and the TD rate similar?
Hardly.

To an electrician, plumber, surgeon, ... it doesn't make the slightest difference whether their client understands electric currents, knows which pipes carry hot and cold water, or understands the inner workings of a knee joint: They each do the best they can in the client's interest. I can't see any reason why a fnancial adviser or teacher should be allowed any more slack when dealing with their clients.

Click to expand...

Yes, of course. As I said a few posts ago when commenting on still feeling stunned that there was apparently a necessity to put in writing that advisers should act in their clients' best interests. Should go without saying.
I'm just suggesting that, if people also want to safeguard their own interests, they should make sure they do not blindly accept whatever they're told, and that to understand enough about basic stuff is just not difficult.

Actually, I know two brothers, both PhDs, one of them turned Financial Advisor; he handles his brother's affairs because they both know who of the two is better trained for the task. The financially passive brother has complete confidence, even during the GFC. The critical element that makes it work for them, and which is missing in the cases we're talking about in this topic, is one of moral compass and integrity: The finance-savvy brother has it in spades.

Click to expand...

Fine. Sadly, some financial advisers do not treat their clients as they would their brothers.

Hodgie said:

A financial planner is required to assess each individual clients circumstances and recommend products and strategies based on that clients circumstances.

A client that is 60 years old, who is looking to transition to retirement and has a significant asset base but a very low tolerance to risk is going to get completely different advice to a 35 year old who works in the mines and is looking at a high risk strategy to build wealth over time as they currently earn a large amount of income.

A gearing strategy may be completely appropriate for one client but not another, just as term deposits or investing into stocks are appropriate for different clients in different situations. More importantly for your original post about the advisor going into the products he recommends, those products may not be appropriate for the advisers situation and tolerance to risk.

Click to expand...

Zackly.

This all comes back to when Julia originally stated that advice may be appropriate in a bull market but not a bear. This is not the way the courts or the financial ombudsmen see it.

Click to expand...

Hodgie, I should have been more clear that any suggestion from me that Storm's advice was appropriate at any stage for retirees was tongue in cheek. If there was no sound exit strategy in the event of a market downturn, then obviously it wasn't.
I've used Storm as a fairly extreme example of where, sadly, many people trusted where they should not have.
The principle of saying "if you go to a financial adviser you should be able to trust that advice " is all well and good, and in an ideal world it would always be true.

But if you live in the real world, you're going to be safer if you put any suggestion through the common sense test, viz no way in the world was it safe for people in their 70s to risk their homes and super to gear heavily into an environment which is well known to swing up and down.

I know very well there are excellent financial planners around. Some of them post here and have given examples of very useful strategies where they have maximised their clients' financial situations. Probably most do that well.

But let's just always be aware of the shonks whose interest is only in what's in it for them. There are attempts everywhere to take advantage of us, from the phone call telling you your computer needs their urgent attention, to someone going from door to door selling some roof cladding or other house treatment.

Or maybe I'm just a cynic.

Julia said:

Hodgie, I should have been more clear that any suggestion from me that Storm's advice was appropriate at any stage for retirees was tongue in cheek.

Click to expand...

Fair enough, hard at times to pick up on certain things on a forum.

"Mad as Hell" did a great spoof last week on Macquarie bank financial planners -worth watching, quite funny but it hits the mark.

As Adele Ferguson says, the issue has hit the public conscience with Timbercorp, CBA, Macquarie etc.

As the comedian on As Mad as Hell explains the job thus: "Financial planning is not an exact science like skydiving or gargling. "It takes years of experience to anticipate the exact moment your client is likely to accept your advice on which of our bundled investment products they should purchase so we can make budget."

Click on this to read the article and watch the skit -definitely worth it: http://www.smh.com.au/business/comm...ond-a-joke-20141027-11chqu.html#ixzz3HOxNXUSE

Now people have lost faith in the banks, it will be a lot harder for them to win it back, especially since there are no laws protecting the sucker er customer being fleeced er advised.