On Inside business this morning the chairman of ASIC was interviewed regarding the collapse of Westpoint. It seems that over $300,000,000 of investor funds have been lost in the Mezzanine finance division. The problem for Asic is that the community has been continually told that you can count on advice from financial planners. In fact it is illegal to give advise if your are not one. Even an accountant cannot give advice even though in most cases they are far better educated than the average financial planner.
It has been acknowledged that many of these planners were paid commissions of 10%. Clearly this advice was given based on how much commission the planners were making rather than how good the product was. I spoke to someone recently who told me that their planner told them that there money was safe. They have lost in excess of $300,000.
There are people who suggest that ASIC should control the property industry. That is clearly not the answer. If you are spending your own money then you should do your own research. If something looks to good to be true then it is.
Mezzanine finance is a top up that the developers cannot borrow from the bank. In other words a bank may lend a developer 65% of the project subject to presales and the need say an extra 10% raised by investors. It also means that if something goes wrong you are last in line to receive any repayments. This was always a high risk investment Financial planners do not normally recommend property because they do not much money from it. However with direct property investment, even if the market falls, the property still retains a large percentage of its previous value and no matter what market conditions are like today, in time the value will improve. If you invest in shares or a product like Mezzanine Finance and the company goes to the wall you will probably loose all your money.
Think carefully where you spend your money, do your own research, until you are comfortable that you are making the right decision. After all at the end of the day it is your money.
Nigel Kibel
http://www.propertyknowhow.com.au
Australian and New Zealand The United States Property Researcher and education
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Nigel is some respects is correct with his post.
As a Financial Adviser i would never recomend a client invest in Mez finance unless their risk profile indicated that they were happy and prepared to adopt a high level of risk for what could be perceived as a high level of return.
The investors in Westpoint would have known that the FIn Planners were receiving a commission to this level as it is a requirement under Section 849 of the Corporation Act to disclose it as well as in the Statement of Advice document they would have been issued.
This is not to say that it was right and in fact i am against high return investments for just this very reason. Anyone who has anyalsed the Westpoint PDS could have made a valued judgement as to the likely success of the operation given the fees, charges and commission being paid.
The role of the Financial Planner is to make recommendations to his or her client only after anyalsing their financial position now and where they want to be in the future taking into consideration risk profile. Diversification is a key to spreading the risk and often it is a matter of making a recommendation where you will not receive any form of recompense. Direct property would be one example.
There is no quick way to wealth creation although the use of Rule 72 enables clients to calculate where they will be in the future given current rates of return.
This Rule can be applied to every investment from Bank deposits, to equity investment and property returns.
“Even an accountant cannot give advice” – not quiet true but admitedly it is limited.
Sourcing a good financial adviser is a matter of looking at their past experience, how you get on with them and asking them what areas they invest their own funds in. I doubt very many of the Westpoint Adviser invested in Mez Financing themselves.
Richard Taylor
Residential & Commercial Finance Broker
**Lodoc Commercial loans from 7.39%**
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I am not saying that all financial planners are the same. However it was one of the preferred recommendations by many planners 18 months ago. At this point I spoke ith a number of planners who all said they were comfortable with Westpoint.
Nigel Kibel
http://www.propertyknowhow.com.au
Australian and New Zealand The United States Property Researcher and education
One Day property investment research workshop The United States. Please register your interestNigel Kibel | Property Know How
http://propertyknowhow.com.au
Email Me | Phone MeWe have just launched a new website join our membership today
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