Banksia Financial Group bites the dust

[ASICK]

Gambling is Gambling

Apparently I was in error in concluding you were a Banksia investor.

I expect you're indeed over anyone commenting on risk/reward. Doesn't make it less relevant, however, as it doesn't seem to have occurred to some investors.

I'll try again - it's a given. Many investors in badly damaged MIFs have learnt a lot these past years.

Here's a posting in a PFMF forum from yesterday, "For me the main lesson is to never believe anything you read in a prospectus. And don't delude yourself that there is any govt agency that gives a damn whether organisations comply or not. Having understood these two facts, your investment options become much narrower." (Ian N.)

(sadly, many haven't learnt much at all, but many of those are unlikely to be investors again due to age and lack of capital)

Regardless of blame, the impact on our community is enormous:

http://www.news.com.au/national/eld...l-group-collapse/story-fndo4cq1-1226511022862

''... the group collapsed when a key subsidiary, Banksia Securities, was placed in receivership late last month owing investors $650 million.

Of this amount, about $300 million is made up of deposits that range between $100,000 and $500,000. Another $300 million comprises deposits less than $100,000. All up, $650 million in investor funds have been frozen in the group's downfall. ...''

''... Warrnambool couple Chris and Eleonora Symmonds have two-thirds of their life savings invested in Banksia. The couple opened a fixed-term investment account in 2002 on the advice of a financial planner. At the time of the collapse it was paying 5.5 per cent. "We went there because we did not want to get caught out by the stockmarket so Banksia was recommended to us as a more secure investment - we weren't chasing high returns," Mr Symmonds, 58, said.

"I know we won't get it all back and we are at an age where we can't make it all back so we will have to live with that."

The couple, who get a carer and disability payment, are frustrated that Centrelink continues to count the frozen Banksia deposit as part of their assets. ...'' (emphasis added)

Let's not forget regulation:

http://afr.com/p/personal_finance/s...sson_investors_you_are_sRwTQeTdekT71dJdj9nobP

''... After the Westpoint failure the Australian Securities and Investments Commission (ASIC) did not overhaul the legislation governing debentures issued by unlisted non-ADI lenders, but rather it implemented an “if not, why not” regime. This involved setting eight benchmarks, including minimum capital ratios, loan-to-value ratios on specific loans and disclosures about funding and loan profiles.

But missing the benchmarks doesn’t prevent institutions from raising the funds. It only means they have to disclose this to investors in the prospectus. This puts the onus on the individual investor to identify the risks of the non-regulated institution that has issued the debenture.

The mere fact the institution has been approved to raise funds is not an endorsement that it is safe.

There is a strong case to be made for regulation to be changed so that benchmarks are enforced and companies that don’t comply are shut out of the funding markets.

In the past week ASIC has announced it will set up a taskforce to look into the debenture market, where 18 issuers are still raising money in this format. Of these, 12 miss ASIC’s benchmarks.

In the interim, investors and their advisors will be well served to ensure they conduct thorough research before committing a cent to non-APRA regulated lenders.[/B] ...'' (emphasis added - really, every part of this except should be emphasised to an equal extent)

 

[ASICK]

"a degree of cash on hand"

http://www.abc.net.au/news/2012-11-06/hope-remains-for-banksia-investors/4355422?section=vic

"The chairman of the working group, Deputy Premier Peter Ryan, says the receivers cannot say what percentage of investors' money will be returned."

So much for the 70% return. It's always like this - hope, then hope dashed.

 

[No Trust]

Billions lost, elderly exploited

Billions lost, elderly exploited
Niall Coburn
Financial Review
7 November

"Equititrust, City Pacific, MFS, LM Investments, Banksia Securities and many more have all proved to be a dog of an investment. Corporate investigations have revealed that the investment model of such schemes was in many cases materially flawed, lacking the right risk and compliance strategies."

http://afr.com/p/opinion/billions_lo...m0mE8K8eMJTquO

 

[k.smith]

Re: Billions lost, elderly exploited

Billions lost, elderly exploited
Niall Coburn
Financial Review
7 November

"Equititrust, City Pacific, MFS, LM Investments, Banksia Securities and many more have all proved to be a dog of an investment. Corporate investigations have revealed that the investment model of such schemes was in many cases materially flawed, lacking the right risk and compliance strategies."

http://afr.com/p/opinion/billions_lo...m0mE8K8eMJTquO

I see that the AFR article No Trust linked in post 23 is now available to read online

http://afr.com/p/opinion/billions_lost_elderly_exploited_JzBSK38sm0mE8K8eMJTquO
''...You only have to read the June 2011 Corporate Advisory Committee paper that reviewed managed investment schemes to understand that the legislature and politicians had no idea of the complex tiger they were unleashing on an unsuspecting investing public....''

How were all the hundreds and thousands of elderly retirees supposed to understand the "complex tiger" if the legislature and politicians had no idea?

The discussion paper referred to in the article is 120 pages long
http://www.camac.gov.au/camac/camac.nsf/byHeadline/PDFDiscussion+Papers/$file/MIS_DP_Jun11.pdf


The report which came out a year later is 205 pages long
http://www.camac.gov.au/camac/camac...al+Reports+2012/$file/MIS_Report_July2012.pdf


Pages and pages of issues, submissions and recommendations... is that to make investors feel comfortable that something is being done?
Because this isn't about a few reckless investors chasing a few dollars more.... it is about the lives of hundreds and thousands of elderly people who trusted a "complex tiger" and now find themselves trapped and frozen in schemes where information about the future of their investments is scant, and where the decisions that they are asked to make are a whole new series of complexities.
I think that all the talk in the world about well informed investors and a fair and transparent marketplace is worth nothing while these collapses keep happening and while this situation is continuing.

Why weren't the laws changed after the 2005 collapse of Westpoint when an ASIC investigation had found that the $8billion sector was "fraught with risk?"
Why weren't the laws changed after the 2008 collapse of City Pacific First Mortgage Fund and the MFS Premium Income Fund?
Why weren't the laws changed after the 2010 collapse of Equititrust?
Why were these funds allowed to continue to advertise and entice investors when such risk as disclosed back in 2005 within the "sector" was identified ?

Obviously RG disclosures haven't been enough
http://www.smh.com.au/business/untimely-death-clouds-banksia-probe-20121101-28mr4.html
''...
''The fundamental objective is to provide retail investors, and their advisers, with more investor information to make their decisions before they invest and then on an ongoing basis,'' ASIC's then chairman, Tony D'Aloisio, said.

The best that can be said about the ''if not, why not'' approach is that it is useless. The adage ''should have, could have, would have, but didn't'', applies to too many.

By not lobbying to change the law but leaving it in the hands of the entities to disclose in their prospectuses has meant the ball has rolled on for a further five years, taking a number of victims with it...''



I wonder who will be next?

 

[Julia]

Re: Billions lost, elderly exploited

Why weren't the laws changed after the 2005 collapse of Westpoint when an ASIC investigation had found that the $8billion sector was "fraught with risk?"
Why weren't the laws changed after the 2008 collapse of City Pacific First Mortgage Fund and the MFS Premium Income Fund?
Why weren't the laws changed after the 2010 collapse of Equititrust?
Why were these funds allowed to continue to advertise and entice investors when such risk as disclosed back in 2005 within the "sector" was identified ?

Obviously RG disclosures haven't been enough
http://www.smh.com.au/business/untimely-death-clouds-banksia-probe-20121101-28mr4.html
''...
''The fundamental objective is to provide retail investors, and their advisers, with more investor information to make their decisions before they invest and then on an ongoing basis,'' ASIC's then chairman, Tony D'Aloisio, said.

The best that can be said about the ''if not, why not'' approach is that it is useless. The adage ''should have, could have, would have, but didn't'', applies to too many.

By not lobbying to change the law but leaving it in the hands of the entities to disclose in their prospectuses has meant the ball has rolled on for a further five years, taking a number of victims with it...''
I wonder who will be next?

What sort of law do you want to see put in place?
Do you believe any organisations which are not APRA regulated should not be allowed?
Would just be interested in what level of restrictions you think should be imposed in some sort of attempt to save people from making uninformed decisions.

 

[ASICK]

This was an issue ASIC was struggling with (but I can't find the link again) - it was about moving the "dial" to stricter regulation which would stiffle investment, or alternatively, the other way to less regulation and "bury" more investors: it seems to me that ASIC left it right where it was. (since I can't find the original article, I've paraphrased the article as I remember it).

Some law changes which I think are necessary:

1. A top limit of LVR re: loan/security asset of say, 61%.
2. No bank debt permitted by MIFs.
3. No investment in MIFs by super funds.
4. Cash accounting only by MIFs - no accruals accounting.
5. Stricter oversight re: valuations of security properties.
6. No lending with mere vacant land as security - that is, development must have began and approvals granted.
7. Discharged bankrupts not permitted as directors of holders of AFSLs.
8. No lending from MIF to companies whereby a director is a discharged bankrupt.
9. That once a fund is frozen, the court must appoint a receiver - that is, the manager must be ousted immediately.
10. NO related party transactions by the responsible entity.
11. A new definition of the what constitutes a "related party" which should include relationships with all directors and key personell of the Responsible and any appointed investment/asset manager.
12. Full disclosure of security properties.
13. A big notice on the front of each PDS - "This PDS is NOT Worth The Paper it's Written on"

 

[k.smith]

Re: Billions lost, elderly exploited

What sort of law do you want to see put in place?
Do you believe any organisations which are not APRA regulated should not be allowed?
Would just be interested in what level of restrictions you think should be imposed in some sort of attempt to save people from making uninformed decisions.

Interesting article today, very topical...

http://www.professionalplanner.com.au/regulators/asic-spruiks-need-for-advice-in-“complex”-future/
''....
The increasing complexity of the financial system and the growing regulatory perimeter are the two biggest challenges facing the Australian Securities and Investments Commission over the next decade....''

''...Front and centre for the regulator is superannuation, which is expected to grow to $3 trillion over the next decade and to $5 trillion the following decade.

“It will grow at twice the rate of the economy. This will increase ASIC’s regulatory perimeter as more investors come into the system and invest more money,” said Medcraft.

“This is a shift of savings out of the banking sector into the superannuation/funds management sector.

“The typical superannuation fund invests in equities, fixed income, property and cash. These are all products that that are regulated by ASIC.”

This growth in super will also have a significant impact on financial advisers, superannuation trustees, investment managers, custodians, research houses, credit rating agencies, auditors and accountants – all play a role in supporting investors in superannuation funds and all are regulated by ASIC...''

......


With so much investment shifting from the banking sector, imo the word "regulated" should be better clarified ....... ASIC is not a prudential regulator.

It is the investor who bears losses if the scheme fails, not those who "..play a role in supporting investors in superannuation funds'' .

A PDS need to be simplified and in my opinion if a year twelve high school student cannot dissect and discuss such a document at length, average Mum and Dad investors haven't got a snowflakes chance... a large percentage of Mum and Dad investors of my generation never got to year twelve. When bank interest rates fall, it is the Mum and Dad investors who are the easy target for the glitzy, slick advertising by MIS funds. Remember the barrage of advertising that was in the newspapers around years 2000 - 2008.? I have just this week seen a few flyers spruiking a "reliable interest stream" of nearly 9% and a "benefit of experience" spruik to "weather financial downturn" all while the full history of this company's past failures in it's other funds isn't disclosed.

How will this sort of advertising be perceived by the next tranche of unsuspecting investors ?

So as to what sort of laws i would like to see in place?

Personally, I will never invest in such schemes again. In the position I now find myself, I don't have enough time left in my working life to recover from any potential losses in any investment that involves RISK. Furthermore, I will bore everybody I know about the risks of investing in these schemes.

My hard earned is now growing in term deposits at a number of APRA blessed banks.

However, if it is to be that the "second tier" has a place in the economy, I would like to see a much better level of protection for the next wave of unsuspecting retail investors.

SMSF's should only be able to invest in APRA approved investments. If SMSF's are designed to provide retirement income, this should be kept safe and reliable for the purpose for which it was intended.If you look at a fund's unitholder register, SMSF's abound... well they do in the registers that I have seen!

When a fund becomes illiquid, there should a mandatory option to wind up the fund and the advantages and disadvantages of doing so should come from an independant source, i.e not from the manager. This issue is addressed in the CAMAC report. Hope it's implemented. Also hope the issues surrounding voting, poison pills in fund's constitutions which make replacing a Responsible Entity almost impossible, there all there in the CAMAC report.

The advertising of schemes should be overhauled. Just as the word "bank" is no longer allowed to be used in promoting a "non-bank" product, words such as "reliable" should be thrown out... why say something is reliable, and then disclaim it ? Words such as 'First Mortgage'' in a scheme that has a bank debt, which in turn is secured by a fixed and floating charge over the assets of the fund should also most definitely go. Investors in funds with bank debt stand SECOND behind the bank.

As I have said, the PDS should be much clearer. Perhaps it should begin with the words such as

.. The product you are about to invest in comes with a risk that you could lose ALL of your investment. In the event that this investment fails, you will not receive any help to recover your investment unless you manage to get together with the other investors in this product (at your expense) and find out that a law has been broken. ...''

 

[ASICK]

Financial Disclosure

It's not only the PDS, it's the financial returns, and it's the RG45s.

I'd be surprised if 5% of investors in MIFs understand the content of both financial returns and RG45s. I'd be surprised if 5% even read one of them. I know I didn't - at least I didn't read them until the PFMF went pear-shaped, and even then it took time for me to come to grips with the contents of same.

I'm confident that the majority of investors don't understand what accruals accounting is, and I'm sure that most investors have no idea of how to estimate the quality of unit price by reference to RG45 Annexure A, Table H.

I listed a number of things that I'd like to see changed in the law, and I'd like to add a number of issues.

It should be mandatory for the fund's auditor to give a complete and detailed analysis of RG45 Annexure A, Table H in relation to the quality of the unit price - and that such analysis should be provided along with the RG45.

While accruals (interest receivable) is permitted in the fund - such figures should be highlighted SEPARATELY as monies NOT received - and where commissions and/or management fees are calculated on any accruals (receivable) amount, the amount so calculated should also be highlighted to inform investors that such commissions and/or fees are calculated on monies investors may indeed not recover.

Such accruals should also be shown as a percentage of unit price in order to disclose to investors the degree to which unit price depends on that non-cash item - the extent to which unit price may not be recoverable (to the extent of such accruals).

Many investors tend to fixate on unit price to the exclusion of all else - that is a BIG mistake that so many of us have made - and a BIG mistake so many of us continue to make.

 

[Julia]

k.smith and ASICK: you both make some good points.

On SMSFs

SMSF's should only be able to invest in APRA approved investments. If SMSF's are designed to provide retirement income, this should be kept safe and reliable for the purpose for which it was intended.If you look at a fund's unitholder register, SMSF's abound... well they do in the registers that I have seen!

I disagree with this suggestion. People taking on the responsibility of a SMSF should do so armed with a reasonable degree of financial literacy. There has been this year a substantial increase in the fee paid by SMSFs to ASIC for its regulatory oversight. As the owner of a SMSF, I have absolutely no idea what ASIC is doing for me in this regard, so it seems like yet another tax grab.

Further there has been a suggestion that an additional levy should be applied to SMSFs so that their members can be compensated in the event of their making decisions that go bad.
As someone who is very cautious and conservative in decision making I do not want to be subsidising people who are cavalier in the pursuit of higher interest rates.

All up, I think you can legislate to the point where ordinary people go nuts in frustration, but nothing, absolutely nothing will ever substitute for acquiring a basic level of financial literacy.
You can make PDSs as detailed as you like. They can still absolutely fail to live up to what they claim.
It's up to the investor to sort out the reality of any opportunity.

 

[k.smith]

''... People taking on the responsibility of a SMSF should do so armed with a reasonable degree of financial literacy. There has been this year a substantial increase in the fee paid by SMSFs to ASIC for its regulatory oversight. ...''

reasonable degree???... like so many financial planners who got it so wrong?? SMSF are about providing security, and this should not be exposed to RISK, imo. In the "unlikely event" of the investment suffering losses (which in the case of hundreds and thousands of investors DID eventuate!) who fills the void? Centrelink... which means my taxes and yours will pay more in pensions. My SMSF is paying the extra fees you mentioned this year as well... and there's no reductions for having suffered losses !

''...Further there has been a suggestion that an additional levy should be applied to SMSFs so that their members can be compensated in the event of their making decisions that go bad.
As someone who is very cautious and conservative in decision making I do not want to be subsidising people who are cavalier in the pursuit of higher interest rates...''

I agree with a levy to the extent that investors should be protected against fraud, which is an entirely different issue compared to risk. I believe that all the investors in Trio Capital, for example, should receive compensation.

''...All up, I think you can legislate to the point where ordinary people go nuts in frustration, but nothing, absolutely nothing will ever substitute for acquiring a basic level of financial literacy.
You can make PDSs as detailed as you like. They can still absolutely fail to live up to what they claim.
It's up to the investor to sort out the reality of any opportunity.

I actually said that I think the PDS should be made much clearer. Definitely shorter.

 

[Julia]

reasonable degree???... like so many financial planners who got it so wrong??

On the contrary. Financial literacy will enable the individual to avoid financial planners, most of whom are much more interested in their own financial outcomes than that of their clients.
You are assuming the financial planners 'got it wrong'. Perhaps consider, alternatively, that as long as they were receiving their commissions, they had minimal interest in protecting clients.
(This remark obviously does not refer to all financial planners, many of whom do a competent job for their clients.)

SMSF are about providing security, and this should not be exposed to RISK, imo.

I'd say they are much more designed to provide a tax advantaged structure for those people who believe they can do a better job of managing their own money than can other people, whether that be individual financial planners or public 'one size fits all' super funds.

Plenty of people running their own SMSFs know how to manage risk. It is all part of being financially literate.

 

[ASICK]

If Only It Was That Simple

I'm all for eduction, after all, it's only when we start to learn that we realise how little we know.

Here's some subjects:

LVRs, RG45s, Financial Reports, Accrual Accounting, Valuations (how to, limitations), Leverage (effect of).

So, point me to the school where I, as an investor, will gain sufficiently education to avoid all the risks which lurk in an investment an MIF?

Here's ASIC's website: http://tinyurl.com/ay8hsfu

"Our primary objective in our consumer education work is to develop a financially literate community, where Australian consumers can make informed decisions about financial products and services, and identify and avoid scams and swindlers. To help us achieve this objective, we have developed a consumer education strategy
to guide our activities over the period 2001 – 2004. As part of our strategy, we have set out:
• the scope of our consumer education role;
• the priority topic areas that our strategy should focus on; and
• the delivery mechanisms we intend to use for our consumer education initiatives."
Under "Research", ASIC states (in part), "We are not a primary research agency on consumer education. However, appropriate research projects can inform our education work and increase its effectiveness."

Now, let's see a show of hands from those who think the foregoing is helpful? Huh? no hands !

Under "Our Role", (in part), "We do not think it is appropriate, or necessary, for us to be involved in delivering the type of investor education courses that are readily available in the marketplace." and then goes on with, "However, we do have a role in providing direct consumer / investor education and information that is not easily accessible or not already provided by the market."

ASIC was motivated the cite the following excerpt, "“In terms of the learning process, most of the targets for education are the unconsciously unskilled. ASIC activities should focus on moving this group to the consciously unskilled to enable the education process to make them more skilled.” (our emphasis)" - Geez, how profound!

Under "Referral to Other Organizations", ASIC states (in part), "We do not generally have the resources or
the expertise to provide detailed education initiatives (eg adult education courses on investment), or more personalised initiatives."

Yes, to become an accountant, there's heaps of courses. There's courses for everything - so, what courses does one take to give one's investment a high degree of surity?

Geez .. look folks, a taskforce on Banksia:
http://www.asic.gov.au/asic/asic.ns...egulation+of+unlisted+debentures?openDocument

When the once ONE BILLION DOLLAR CITY PACIFIC FUND went down the tube, there was no taskforce - none for MFS's PIF, none for .. (on and on). It really seems the subject is getting sensitive, all those poor country folk losing money, who by the way, were earning LESS than 6% when Banksia hit the skids (so much for the greedy consumer disregarding risk in favour of above-market returns).

Why the fuss with Banksia investors? Oh Dear, it's so, so obvious - the punters were mostly Victorian, and the Victorian government kickup up a stink, and ASIC, poor dears, are subject to the whims of governments - so, there we have it! But, none for City Pacific, MFS PIF, Equititrust, LM, etc. etc.

Ya gotta love the last line of the ASIC document, "ASIC is not a prudential regulator but will monitor disclosures made by debenture issuers." - it's what might be called a DISCLAIMER.

And the laughs keep turning in.

Finally, I'm up for education, but short of becoming an accountant, lawyer, AND financial advisor, is there a place where I'll learn all there is to learn about investing in a MIF in Australia? A One-Stop-Shop? - a place where I'll get to understand how to read every aspect of financial statements, how to interpret RG45s, how I'll understand valuations as they refer to an investment in a MIF, and how to fully understand the accounting standards applied to such an investment - No, there is not.

And if there was, is there a "Licence to Invest"? (After all, there's no point having education without assessment) - nope, there's not one of those either.

ASIC and goverment spruiks about "Education" for investors are simply a mechanism for both ASIC and goverment to avoid the simple reality that more regulation and oversight is needed, but they're out to shift the onus to investors because that's the easy way to go - there is no doubt (at least in my mind), that ASIC must look to "substance" - it must also look to performance in MIFS - and it must have the where-with-all to pull up those managers who have gone "off the rails".

Maybe the concept of "Agora" (the marketplace) is fine for folks to meet and trade vegetables and the like, but it's just too simplistic a concept for one to go to the market and put at risk all of ones' treasure which has been purposefully set aside for ones' future.

I, for one, say that government should legislate that SMSF should no longer be permitted to be invested into an MIF which is not APRA approved - there's enough shattered lives. The "dial" should be turned back towards less risk, and to more regulation.

Of course, I'd be happy to settle for the status quo if, unlike Shiloh ("Merchant of Venice"), I was legally entitled to exact my pound of flesh on any loss of investment: http://www.shakespeare-online.com/plots/merchantps.html

Bring back debtor prisons, and I'd feel better: http://tinyurl.com/cpts8ta

Revenge may not bring back my gold, but it'll warm my heart.

 

[k.smith]

Re: If Only It Was That Simple

Why the fuss with Banksia investors? Oh Dear, it's so, so obvious - the punters were mostly Victorian, and the Victorian government kickup up a stink, and ASIC, poor dears, are subject to the whims of governments - so, there we have it! But, none for City Pacific, MFS PIF, Equititrust, LM, etc. etc.

http://news.ninemsn.com.au/national/2012/11/08/13/02/banksia-workers-to-get-help-from-vic-govt

''...''These initiatives represent an immediate response to issues being faced by affected communities. The coalition government will continue to undertake work to support local communities in dealing with the impact," Mr Ryan said in a statement on Thursday.
The government would provide funding and support to community groups providing counselling to those impacted, including the local Kyabram hospital, he said.
And the state government would work with the federal government to provide help for those suffering severe financial hardship as a result of the collapse.

...''

But, none for City Pacific, MFS PIF, Equititrust, LM, etc. etc.

12,000 Unitholders in the City Pacific First Mortgage Fund had to wait until 21 February 2011, some three years after their funds were frozen before there was a Hardship Policy in their fund, and some months after that to receive the first hardship payment ! No task force in sight to this day !

http://www.smh.com.au/business/murd...the-airport-20100221-onv4.html?skin=text-only
''....Cameron says he needs money to help pay for his funeral and medical costs. ''I'm just at the point where I've got to go on assisted oxygen,'' said Cameron, who suffers from a terminal lung disease...''

Sad stories of suicides and ill health which continue to this day.

It is not just about $$$$, it's about peoples lives.

 

[Julia]

Item on Banksia screening on "7.30" this evening.
http://www.abc.net.au/7.30/content/2012/s3628933.htm

 

[k.smith]

Item on Banksia screening on "7.30" this evening.
http://www.abc.net.au/7.30/content/2012/s3628933.htm

What disastrous implications there will no doubt be in such a small rural community ! Seemingly there are not 3000, but 15,000 people effected. Lots of sleepless nights for so many.

Can't help but think of people who lost their life savings in these funds who have carried the pain of their loss on their own these last four years.. thousands and thousands of people dispersed all over the country, in every state, most are unaware of each other. City Pacific First Mortgage Fund had 12,000 unitholders, MFS around 10,000, theres Equititrust, Allco, Bridgecorp, Trio Capital, LM ...and the list keeps growing.

http://www.theaustralian.com.au/bus...-jumps-five-fold/story-fn91wd6x-1226513331557
''....The spotlight is again being shone on mortgage funds after the $650m collapse of Banksia Securities last month and the July failure of the $130m Provident Capital. The corporate regulator has launched an investigation into Banksia and is expected to make recommendations to treasury regarding the mortgage fund sector in coming weeks.

A key concern held by the Australian Securities & Investments Commission and others is that investors in mortgage funds are not properly aware of the risks involved with the products, which appears to be supported by the fact many choose to invest in the funds despite the major banks offering similar rates of return.

Another concern is that the funds are operating as "shadow" banks, by taking deposits and allowing withdrawals at any time, while not being subject to the strict provisions of the Australian Prudential Regulation Authority.

GSI is offering a 5.6 per cent return on 24-month term deposits and 5.4 per cent for 12-month deposits. The major banks are offering term deposit returns of about 5 per cent....''

 

[ASICK]

It's Just Not Worth the Heartache

The Federal Government MUST, without delay, make it unlawful for SMSFs to be invested in non-APRA approved MIFs:

http://www.standard.net.au/story/82...plans-trip-to-meet-with-administrators/?cs=72

http://www.standard.net.au/story/760481/banksia-victims-super-loss-scuttles-retirement-plans/

"She worked hard to have a self-managed fund to avoid being a burden on taxpayers in retirement and her superannuation should have been protected, Ms Richards said."

http://www.businessspectator.com.au...it-union-pd20121109-ZUNGM?OpenDocument&src=mp

"Finance companies have been left to swing in the wind with only superficial disclosure-based regulation for the last two decades. This flawed regulatory structure followed the Wallis Inquiry of 1995 which assumed that unsophisticated investors could easily recognize the difference between an Approved Deposit Taking Institution and a finance company with capital protection standards that were utterly inadequate.

Clearly that view of regulation must now be reassessed. Medcraft as ASIC supremo has announced a special task force to examine what happened at Banksia ...but does ASIC really need to know much more?

Disclosure is not enough: ASIC has to seek and wield a new power that will offer clients of finance companies the sort of professional regulation they can reasonably expect from a credit union. Until it does there will be more Banksias and the next one might be well beyond the scope of a regional counselling service."

 

[Julia]

Re: It's Just Not Worth the Heartache

The Federal Government MUST, without delay, make it unlawful for SMSFs to be invested in non-APRA approved MIFs:

Why pick out SMSFs?
I totally disagree with the principle, but if such were to be legislated why wouldn't it equally apply to all forms of Super?

For god's sake, the whole idea of having a SMSF is so that the trustees can make their own decisions about where to invest.

 

[Klogg]

Re: It's Just Not Worth the Heartache

Why pick out SMSFs?
I totally disagree with the principle, but if such were to be legislated why wouldn't it equally apply to all forms of Super?

For god's sake, the whole idea of having a SMSF is so that the trustees can make their own decisions about where to invest.

I agree with you here. But I guess their train of thought is that people need this money to retire on or it hits the governments bottom line... So better to restrict them to potentially lower returns than allow them to lose their money altogether (not that this will guarantee money won't be lost).

 

[ASICK]

Re: It's Just Not Worth the Heartache

I agree with you here. But I guess their train of thought is that people need this money to retire on or it hits the governments bottom line... So better to restrict them to potentially lower returns than allow them to lose their money altogether (not that this will guarantee money won't be lost).

Yes, ya gotta restrict "them" - those who are less able to make decisions. So, it's better for "them" to invest in APRA approved MIFs/MISs (as opposed to such schemes which are not APRA approved) - great idea Klogg. I think you're onto something there. After all, there's so much regulation in relation to SMSFs already, a little bit more isn't too much of a problem.

 

[ASICK]

ASIC's "Dial"- 10 August 2009

Previously I referred to an article in relation to ASIC's "dial" - here's the link and an excerpt (please keep in mind, the article is from 10 August 2009):-

http://www.investsmart.com.au/news/news.asp?Action=Display&DocID=SMH090810S53EE5FHCBG

"Under the model, APRA monitors banks, credit unions and other "authorised deposit-taking institutions [ADIs]", while other outfits, such as mortgage funds and debentures, have disclosure and conduct requirements enforced by ASIC. When it came to the non-ADI operators, the Timbercorps and the Westpoints, Wallis advocated "efficient market theory; let the market sort it out", D'Aloisio says.

"What I'm trying to encourage now is a debate about whether those policy settings have been set at the right level. Because of what we've seen and the losses to investors, should we be turning the dial to more protection, and taking the risk that that might make the markets less efficient, and could marginally add to cost to capital?

"With the experience we've had, because we've got this huge part of the population that are retirees who need to invest because of how the super regulation works, we may need to turn the dial more in that way."

This week, at the Investment and Financial Services Association conference on the Gold Coast, D'Aloisio put forward a series of suggestions for the Government around the area of financial advice, including that advisers be required by law to act in the best interests of clients.

But he suggested that it might be time to place capital adequacy and liquidity requirements on the likes of managed investment schemes and mortgage trusts  requirements similar to those required by APRA."