Banksia Financial Group bites the dust

[k.smith]

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.

There are other reasons why people would choose a SMSF. Reasons may include the control of trustees being able to make their own decisions about where to invest, but reasons such as security, more flexibility, estate planning, costs etc also come into it..

But the PURPOSE for superannuation saving is to provide for retirement income, and this should be imo ROCK SOLID.

With tax concessions provided to superannuation to encourage people to save for retirement, isn't it a contradiction that a SMSF which IS regulated and that receives tax concessions (and a yearly co-contribution payment) is them permitted to invest in schemes that are not regulated, and where the original purpose of providing for retirement is all placed at risk?

 

[Judd]

Interesting isn't it? With over 425,000 SMSF's in operation, when a relatively small number lose money due to a multitude of reasons, and admittedly that badly hurts the individuals involved, up goes the cry that all SMSF's should or should not be allowed to do this or that as money could be lost.

On that basis maybe SMSF's should not be allowed to invest in art works (that is not APRA regulated) or property (that is not APRA regulated.) Not that I advocate these merely pointing out what SMSF's are presently permitted to do.

What next? Only allowed to place funds in Term Deposits with APRA regulated financial institutions as every other investment carries risk?

I no longer have an SMSF as I simply do not need one but I can appreciate why individuals establish them. I can also appreciate why various interested entities do not like them. It allows individuals to have control and that scares the bejesus out of Governments, fund managers and other self-interested parties.

 

[ASICK]

If In Doubt, DON'T!

Here's an approved investment:

http://www.miguardianfiduciary.com/Home.aspx

Here's some comment about it:

https://www.aussiestockforums.com/forums/showthread.php?t=19877&page=142&p=736785#post736785

and that comment about having to be licenced to be a barber, but not for a banker - soothing, right?

and you guys wonder why investors need protection?

I have no doubt that SMSF's should not be permitted to invest in non-APRA approved MIS investments.

We'll never agree with each other - perhaps an old adage I once heard in the army is applicable, "if in doubt, DON'T!"

Trouble is, doubt doesn't always raise its head when the path to depositing one's savings is strewn with rose petals.

UPDATE - an old link that may be of interest:
http://www.smh.com.au/business/new-champion-of-retirees-who-lost-life-savings-20120711-21w84.html

 

[Judd]

Re: If In Doubt, DON'T!

I have no doubt that SMSF's should not be permitted to invest in non-APRA approved investments.

We'll never agree with each other - perhaps an old adage I once heard in the army is applicable, "if in doubt, DON'T!"

Absolutely agree with you in regard to individual opinions and views

Just a thought on the question of "permitted" investments. Should that also apply to investments outside superannuation since, as I understand it, quite a number of individuals who have been hard it by Banksia did not place funds in it via superannuation? Or is it OK if they do their dosh as no tax concessions were involved?

It is a vexed issue. I have seen the results on the members of my family who have lost money and it is certainly not pleasant as a number would appreciate.

Actually I don't have an answer to my own questions. I believe in the right of people to invest their money where they see fit, provided it is lawful, yet at the same time I do not wish them to lose their hard earned as a result of shonky schemes.

As for these mortgage funds I have not been near them. Haven't even read a prospectus. I just assumed they were established to provide borrowing to those who could not get a loan from a bank because they did not meet the bank's lending criteria (and the bank's can get it horribly wrong) and so were way up the risk curve. Probably pure luck on my part.

 

[Julia]

There are other reasons why people would choose a SMSF. Reasons may include the control of trustees being able to make their own decisions about where to invest, but reasons such as security, more flexibility, estate planning, costs etc also come into it..

But the PURPOSE for superannuation saving is to provide for retirement income, and this should be imo ROCK SOLID.

But why pick out SMSFs? Why not apply the same principle to all Superannuation? If your proposition were to be logical you would have to apply it right across all Super. People who have Super in public super funds don't usually even know where it's being placed. Do they know that their shares are regularly loaned out e.g.?
I doubt it in most cases.

Most people in Super funds have, maybe just by default, taken the Balanced option. This usually includes a high proportion of shares, up to 70%. You can't say these are 'rock solid'. As we have seen, markets can fall suddenly and they do.
So, as Judd points out, about the only 'rock solid' investment is an APRA regulated bank deposit.
If interest rates are high, that's not too bad for retirees in pension phase who are paying no tax, but for many, even the tax concessions, once inflation is taken into account, will not make it a worthwhile investment.

As for these mortgage funds I have not been near them. Haven't even read a prospectus. I just assumed they were established to provide borrowing to those who could not get a loan from a bank because they did not meet the bank's lending criteria (and the bank's can get it horribly wrong) and so were way up the risk curve.

Seems a pretty logical assumption.

I totally understand the distress of anyone who has lost money. It's awful. Especially if one is older and unable to save that capital again. And in the case of Banksia, the fact that it was a local company, considered an essential part of the community, especially shocking.
But it's not reasonable to then legislate to limit the rights of everyone as regards their choices.

 

[ASICK]

MIS - So Easy to Set up

An MIS is quite easy to set up - seems a "First Mortgage" fund is able to be structured at least two ways:

1. Re: Trilogy Healthcare REIT
http://www.moneymagik.com/analysis_REIT.php

The manager is in this get done a deal with a relative company (Rojacan Pty. Ltd.) which seems to have lent enough to the fund to gain the deposit to buy the property:
http://www.hartiganbolt.com.au/site/property_detail.asp?id=201&pge=1

And a bank, in this case, the ANZ fronted up with the remainer to buy the sad looking property at Crows Nest. The manager was able to spend over $450k of investors money over two years (2008 / 2009) to lure investors into the fund, and then Rojacan was able to jump out and leave the punters to their face. In fact, in 2009, Trilogy took $3.555m in investment at $1.00 per unit when the current value for such units (30 June 2008) was only $0.63 - ASIC isn't concerned in the least, it's a prudential problem - if investors are dumb enough to invest in such a way, then so be it.

The 2012 return on the link to www.moneymagik.com/ above - it's all over for investors in that fund.

and a second way:

2. Re: Trilogy Cape Parks fund
http://www.moneymagik.com/cape_parks_fund.php

The manager for this fund is/was looking for investment:
http://www.atpfinancialpartners.com.au/3234_New Offers.html

However, while the ad says, "The planned expansion of the company required two capital injections. The first was successfully completed in 2010. Since 2010 the market penetration of the Cape Parks Fund with placement on the “Approved Product List” of Licensed Dealers has grown rapidly.", the fund has purchased an investment property (refer the above www.moneymagik.com/ link)

So, whether the fund intended to start off with a "seed" or not, it didn't - it started off luring investors through spruiks on Trilogy's and Newcastle Wealth's webesite without an investment property in the fund and without an adequate income from business activities to pay the nominated return and cover fund expenses.

In fact, as at 30 June 2011, the fund only had only $30k of arms-length investment and spruiked a 8.5% return (which was mostly paid for by the manager, since no investment property had been purchased)
http://capefunds.com/assets/files/NOTICE_Income support to Cape Parks Fund.pdf

As at 30 June 2012, the fund held 1000 * $1.00 units but is still advertised as "an important investment opportunity":

http://newcastlewealth.com.au/2011/...on-parks-an-important-investment-opportunity/

I'm pleased that the $30k investment in 2011 was returned in 2012 - actually, I think that right forms part of the PDS (if an investment property is not purchased).

It's obvious (at least to me), that Trilogy's massive spend on advertising in order to extract Rojacan's loan in its Healthcare REIT is proof enough that managers are not in the risk game, that's for the punters.

Trilogy's Healthcare REIT fund was a disaster waiting to happen - yet on it went, losses year after year - with investors locked in for the ride to the end, just like one might experience in a car crash.

All it needed was some seed money (for a deposit), a greedy and compliant bank, and (as some might say), some gullible punters, and it's all set in stone (as per PDS/constitution). It didn't have to succeed, it only had to conform. Over $450k of punters' money in advertising - that's quite a spend.

Now, I wonder what the outcome would have been if the mob at Trilogy were required to make the fund APRA compliant? Maybe it would never have got off the ground - now, I'm sure that would have been more than pleasing to those who did their hard-earned in that fund.

 

[ASICK]

IT Has Been Decided!

I should point out that my last posting was not intended to respond to Julia's last posting - I had not seen Julia's posting.

The argument is circular now.

A decision was handed to me from "up high" - my view is right, SMSFs should only be permitted to invest in APRA approved MISs/MIFs - Julia's view is misguided. AMEN

Thank you God.

 

[Klogg]

Re: It's Just Not Worth the Heartache

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.

I wasn't supporting the decision. I just said, that's the approach.

And "them" referred to any people with a SMSF.

 

[Julia]

Re: IT Has Been Decided!

A decision was handed to me from "up high" - my view is right, SMSFs should only be permitted to invest in APRA approved MISs/MIFs - Julia's view is misguided. AMEN

Thank you God.

The topic is interesting. Seems a pity, therefore, when genuinely offered considerations are ignored in favour of facetiousness.

 

[ASICK]

Re: IT Has Been Decided!

The topic is interesting. Seems a pity, therefore, when genuinely offered considerations are ignored in favour of facetiousness.

Point taken - I won't drink & post again - sorry.

 

[k.smith]

''But why pick out SMSFs? Why not apply the same principle to all Superannuation? If your proposition were to be logical you would have to apply it right across all Super. People who have Super in public super funds don't usually even know where it's being placed. Do they know that their shares are regularly loaned out e.g.?
I doubt it in most cases.....''

Unlike SMSF, Superannuation Funds are covered by APRA, who monitors their risk management.

http://www.apra.gov.au/AboutAPRA/Pages/Supervision.aspx
''....
APRA supervises Australia’s banks, building societies and credit unions (authorised deposit-taking institutions), life and general insurance and reinsurance companies, friendly societies and superannuation funds (excluding self-managed funds). APRA promotes financial stability by requiring these institutions to manage risk prudently so as to minimise the likelihood of financial losses to depositors, policy holders and superannuation fund members.

Through its supervision, APRA’s aim is to identify potential weaknesses in its regulated institutions as early as possible. APRA follows a risk-based approach under which institutions facing greater risks receive closer supervision.

After an institution is licensed by APRA, it is subject to ongoing supervision to ensure it is managing risks prudently and meeting prudential requirements, and to identify those institutions that are unable or unwilling to do so...''
''....The two main supervisory tools APRA uses are on-site and off-site analysis. These reviews are undertaken by prudential supervisors with in-depth knowledge of institutions in a particular sector, and supported by specialist risk experts...''

The article goes on to describe APRA’s risk-based approach to supervision.

Back to a link I posted earlier

http://www.professionalplanner.com.a...%80%9D-future/
''....“The typical superannuation fund invests in equities, fixed income, property and cash. These are all products that that are regulated by ASIC.”


Risk management in a SMSF is the responsibility of the trustee, and is not regulated by APRA. SMSFs who invested in MIS and lost their retirement funds are alone. Having been exposed in a number of collapsed MIS, and become quite involved in the how,whys and wherefores, both before and after the event of collapse, has illustrated to me how easily dudded investors are, and how difficult it is to protect oneself when a fund becomes illiquid. Understanding the extent of risk in these schemes, I will NEVER invest in such schemes again. Even in the "good times". But what about the next tranche of unsuspecting SMSFs? When term deposits fall to low levels, and shares putt-putt along, and the glossy brochures with the star awards and sparkles arrive?

A recent report said that the number of SMSFs in Australia has increased by 7% for the year to March, from 435,000 to 468,000. With such increases in the number of SMSFs, will the likelihood of investors being lured into risky schemes also increase? Do we just accept that there will be devastating collapses from time to time and casualties?
The purpose of superannuation is to provide for retirement and the working population financially supports this strategy expressed in tax concessions and rebates.

There is a responsibility to ensure that the products that SMSFs can invest in are prudentially regulated.

 

[Julia]

Point taken - I won't drink & post again - sorry.

Would hate to be a killjoy, ASICK. The facetiousness was understandable and entirely forgivable.

Unlike SMSF, Superannuation Funds are covered by APRA, who monitors their risk management.

Thank you for that, k.smith. I've never had anything to do with public Super funds and had no idea they were APRA regulated. Much appreciate the correction.

At the same time, is there anything in the legislation which actually prevents these Super funds from investing in such as Banksia should the fund managers deem it appropriate?

Another question: Why does the government allow fund trustees to lend shares owned by their members to facilitate short selling by hedge fund and other traders? The trustees are lending shares they hold only as trustees, raising the question of whether they are acting in the best interests of members.

Given the poor performance of public super funds in recent times, it would seem reasonable to question the judgment of super fund managers and whether they are necessarily acting in the best interests of their members.

All these considerations bring me back to the conclusion that the best defence any individual has against shonky operators, whether apparently regulated or not, is to acquire some personal financial literacy in order to be able to avoid allowing anyone else the management of your own money.

 

[FxTrader]

"After an institution is licensed by APRA, it is subject to ongoing supervision to ensure it is managing risks prudently and meeting prudential requirements, and to identify those institutions that are unable or unwilling to do so...''

How many SMSF trustees would want such supervision and/or are prepared to pay for it? On the other hand, financial risk management is actually a highly skilled profession and way beyond the capability of the vast majority of SMSF trustees. The regulatory requirement for SMSF is simply an investment strategy (most of which are just short and deliberately vague compositions) and an RMP (risk management plan) if investing in derivatives and also a DRS (derivative risk statement) when creating a charge over assets in the fund. I spent many hours creating these documents but I suspect most trustees do the minimum required by law or just let their accountant draft up something compliant.

There is NO responsibility incumbent upon SMSF trustees to invest in products that are prudentially regulated. The requirement is to adhere to the investment strategy of the fund while "speculation" must be avoided. Good luck trying to discern what ASIC defines as speculation. Banksia and other such entities would be perfectly acceptable investment vehicles for SMSF unless such an investment class was restricted by the fund's investment strategy.

All these considerations bring me back to the conclusion that the best defense any individual has against shonky operators, whether apparently regulated or not, is to acquire some personal financial literacy in order to be able to avoid allowing anyone else the management of your own money.

Amen, there should be some mandatory literacy baseline for super trustees in particular.

 

[k.smith]

At the same time, is there anything in the legislation which actually prevents these Super funds from investing in such as Banksia should the fund managers deem it appropriate?

Another question: Why does the government allow fund trustees to lend shares owned by their members to facilitate short selling by hedge fund and other traders? The trustees are lending shares they hold only as trustees, raising the question of whether they are acting in the best interests of members.

Given the poor performance of public super funds in recent times, it would seem reasonable to question the judgment of super fund managers and whether they are necessarily acting in the best interests of their members.

All these considerations bring me back to the conclusion that the best defence any individual has against shonky operators, whether apparently regulated or not, is to acquire some personal financial literacy in order to be able to avoid allowing anyone else the management of your own money.

Julia, did you read this?

http://www.smh.com.au/opinion/politics/supersized-ripoff-for-average-workers-20121106-28w17.html

''.....The reason there is no great outcry about this system is that so many well-paid people profit from it. The people who do the best are the funds managers. They are allocated money by the super funds to invest in stocks and bonds. The more money they manage, the more they get paid. They also get bonuses if they ''outperform'' the industry average.

The average return of industry super funds last year was 0.61 per cent, considerably less than you would have got by putting your money in the bank. Over the past five years the average return was minus-0.17 per cent, which is less than you would have got by putting your money under the mattress. On average, people who had money in these funds went backwards and paid fees for the privilege of losing their own money!...''

''....Even today, industry funds are quoting retirement benefits based on 4.5 per cent real per annum returns. That is not the world of recent years. No one can say if it will be the world of the next 20 or 30 years. It is high time there was a thorough and open examination of returns in this industry. There has been too little critical scrutiny. We should remember that the system is not there for the benefit of those who work in it but for those who fund it out of their hard-earned wages....''

and this

http://www.abc.net.au/news/2012-10-31/kohler-australia-super-disgrace/4343108

''....Many people, realising late in life that they won't have enough, start taking bigger and bigger risks as they approach retirement to improve their returns, when the opposite is recommended. For some this pays; for many it is a disaster.

Meanwhile, when we retire we are left to our own devices with a lump of money. Usually, but not always, we consult an adviser. Sometimes we give the lot to a nice man who then runs off with it.

The advisers used to be paid commissions by investment managers, as well as unscrupulous shysters, to ensure that the money found its way back to them.

Those commissions are now banned, in the face of a ferocious campaign from the industry, but the money still mostly goes back into "balanced" investment portfolios - that is, shares, property, hedge funds, private equity, bonds and cash - using expensive managers for each category....''

It has been enlightening to read these and other articles today. I understand now why so many people are electing to start their own SMSFs and how concerning the implications of that are. Remember the mailout that we got from ASIC warning everyone about shonks? And all the articles warning us about fraud?

The future looks worrying. Lots of problems.

In answer to your questions re shares and fund managers investing in MIS I am (at this stage) unsure of the answers. But rest assured, I will work on becoming financially literate...

 

[k.smith]

''... Banksia and other such entities would be perfectly acceptable investment vehicles for SMSF unless such an investment class was restricted by the fund's investment strategy....''.

And Super Funds? Could they invest in companies such as Banksia?

 

[Julia]

Julia, did you read this?

The comments are 100% accurate. If only more people would accept the reality instead of continuing to imagine all financial advisers and fund managers have the clients' best interests at heart.

(As always, I absolutely acknowledge that there are decent, honest people in these roles. The problem is that, without any basic financial literacy, it's very difficult for the average person to discern the competence or otherwise of these advisers).

On the Storm Financial thread, it has repeatedly been claimed that "we should be able to trust absolutely the advice of any licensed financial planner/adviser". Yes. In a perfect world, we should all be able to trust that anyone with a qualification in any field will be competent, have integrity, and act in our best interests.

But we do not live in a perfect world and need to deal with the reality that shonky operators abound in all fields, including that of finance, and take this into account when making financial decisions.
I'm still incredulous that it was considered necessary to legislate that "advisers must act in the best interests of their clients" in the wake of the enquiry. That said it all imo.

I understand the anger at losing money, and the reaction to cry for more legislation, but truly, a superior response is to encourage more people to take personal responsibility for their own financial outcomes.
There is, I think, a misconception that this is far more complicated and difficult than it actually is, perhaps due to such an esoteric notion being promoted by professional advisers in order to protect their own position.

Congratulations, k.smith, on deciding to take charge of your own financial situation. Absolutely no one will have a greater interest in its success than you.

 

[ASICK]

... I understand the anger at losing money, and the reaction to cry for more legislation, but truly, a superior response is to encourage more people to take personal responsibility for their own financial outcomes. ...

If only God had created us equally, and then gave us all an equal opportunity :
http://www.indiana.edu/~intell/bellcurve.shtml

Disclaimer: Sorry - I've been drinking and posting again - but it's okay - I don't need a licence.

 

[Julia]

If only God had created us equally, and then gave us all an equal opportunity :
http://www.indiana.edu/~intell/bellcurve.shtml

Disclaimer: Sorry - I've been drinking and posting again - but it's okay - I don't need a licence.

I'm not here to evangelise, ASICK. If it suits you to choose not to take any suggested path, then that's fine with me. Maybe then, however, don't come here and complain about how you have been done over.
I have never met anyone who was born with financial acumen.

I'm simply attempting to offer an option which I have found to work. You say you have acquired considerable professional qualifications in the legal field. I admire that. I cannot understand why you'd not similarly be prepared to put that learning capacity to work in your own financial interests. Your choices, however, are none of my business.

 

[k.smith]

The comments are 100% accurate. If only more people would accept the reality instead of continuing to imagine all financial advisers and fund managers have the clients' best interests at heart.

(As always, I absolutely acknowledge that there are decent, honest people in these roles. The problem is that, without any basic financial literacy, it's very difficult for the average person to discern the competence or otherwise of these advisers).

On the Storm Financial thread, it has repeatedly been claimed that "we should be able to trust absolutely the advice of any licensed financial planner/adviser". Yes. In a perfect world, we should all be able to trust that anyone with a qualification in any field will be competent, have integrity, and act in our best interests.

But we do not live in a perfect world and need to deal with the reality that shonky operators abound in all fields, including that of finance, and take this into account when making financial decisions.
I'm still incredulous that it was considered necessary to legislate that "advisers must act in the best interests of their clients" in the wake of the enquiry. That said it all imo.

I understand the anger at losing money, and the reaction to cry for more legislation, but truly, a superior response is to encourage more people to take personal responsibility for their own financial outcomes.
There is, I think, a misconception that this is far more complicated and difficult than it actually is, perhaps due to such an esoteric notion being promoted by professional advisers in order to protect their own position.

Congratulations, k.smith, on deciding to take charge of your own financial situation. Absolutely no one will have a greater interest in its success than you.

The problem is we thought we WERE in charge. And I wonder how many SMSF investors at the moment who haven't suffered loss believe they are in charge?
I bet a lot of investors at Banksia thought they were in charge until a month or so ago.

So how do you think you should sell financial literacy to people who think that they are "in charge"? And how many will actual understand the concepts? And who will judge if they are compliant? And where do they invest all those super contributions for their future if they aren't?
Just because YOU can achieve a certain degree of financial literacy does not mean that all 468,000 SMSF trustees can, especially faced with having to "..deal with the reality that shonky operators abound in all fields.." How will you educate all those 468,000 trustees to spot shonks? Even the auditors can't !!!

The fact is that the industry super funds are returning zilch, and that in part has contributed to an unbelievable surge in SMSFs. Last year they increased in numbers by 7%. So where do they go for advice? to financial planners?

Recent research by ASIC about financial advisers and fund managers imo just compounds the problem.
http://www.abc.net.au/news/2012-03-28/asic-raps-financial-planners-over-advice/3917290

''... rated just over a third of the advice given as poor, with just two examples of advice rated as "good quality".

I think investors will choose to rely more on their own strategies as reports such as this have been so prevalent.
With all those 468,000 trustees around, imo enough to incite a new flurry of schemes and dreams.
DANGER, DANGER.

When we placed funds from our "regulated" SMSF into these schemes we interpreted the fact that we could do so as an endorsement by the regulators.
All the funds we invested in carried an AFSL, they were all registered companies with ASIC.
It wasn't until some time after "the tide went out" that we realised that we were on our own in a scheme regulated by ASIC, but not prudentially regulated by ASIC.
And that there were MANY of us in similar circumstances, from all different backgrounds, including educational.

Here's some stats about frozen funds... Banksia, the latest casualty, of course does not show up yet, that is still to come. And there will be more asset writedowns.

http://www.asic.gov.au/asic/pdflib.n...management.pdf


''....Current frozen fund estimates
Based on the most recent data available to ASIC (at November 2011), we estimate that FUM that are considered frozen have declined to $15.26 billion from a high of $25.36 billion in November 2009...''
''....Since November 2009, frozen FUM have declined through periodic withdrawal offers, as well as $127 million of hardship redemptions and asset write-downs. Of the current total frozen FUM of $15.26 billion, funds worth $6.0 billion have been restructured with member approval or are winding up their schemes...''

So "Congratulations" ? no congratulations, thanks...the more I have learnt, the more I realise what I don't know..
Unless these funds are regulated by APRA, it will just keep happening. SMSFs shouldn't have exposure to risk where they can loss not just part, but ALL of their investment. In the case of the MIS schemes that we are involved with, the actually amounts retrieved to date after all those asset write-downs are very little, and the expenses paid huge. Furthermore, when MIS funds freeze, we are at the mercy of every scheme in the book to separate us from our legal rights to redemptions and to be treated equally as per the Corporations Act, and to this day we continue to face this alone. And no, I am not angry or crying. I know that the world is not a perfect place. Everyone is different.

http://www.indiana.edu/~intell/bellcurve.shtml
''...."Inequality of endowments, including intelligence, is a reality. Trying to pretend that inequality does not really exist has led to disaster. Trying to eradicate inequality with artificially manufactured outcomes has led to disaster.

 

[Julia]

This is like being in the Storm Financial thread all over again.

I have simply offered an opinion which I hoped would be helpful.

Apparently it is not.

End of attempt for me.