Reforms should help avoid Hangovers

Do you have money invested with an investment company? Then you should read this.

"Bills, bills, bills and more bills. There's never anything to look forward to with the mail delivery now," sighs Farmer Freddy as he opens the day's mail.

"Ah, here we go. At last some good news.  Here's my investment update from Hangover Investments."

"That's odd," he muses, as he starts to read it.

"Where are the charts showing how much my money has grown? What's all this guff about the global financial crisis got to do with Hangover? What on earth's a securitised mortgage or a collateralised debt obligation? Oh no!"

Freddy calls Pebbles.

"Pebbles, Hangover has gone into liquidation. All the money I invested with it is gone!" he weeps. "I told my financial adviser I wanted a safe investment and he said it would be as safe as a bank deposit!"

"Crikey Dad, you're having a bad run of it. How much did you have in Hangover?" asks Pebbles.

"About $15,000!" replies Freddy. "I can see why people keep their money under their mattresses. What should I do? "

"First things first," explains Pebbles. "The liquidator will probably sell Hangover's business, or its assets, to try to realise as much as it can for Hangover's creditors and shareholders. Since your investment was an unsecured deposit (that is, Hangover gave you no security for it) you will only get any money back after secured creditors and preferential creditors (eg, the IRD) have got their money back. So while you may get some money back from Hangover, I wouldn't hold my breath."

"The other person you can ask searching questions of is that financial adviser of yours," explains Pebbles.

"At the very least, he's breached the Fair Trading Act 1986 by saying the product was as safe as a bank deposit, when it wasn't, as well as the Consumer Guarantees Act 1993 by providing a product that wasn't fit for the purpose that you clearly told him it was for."

"So if he's good for it, you should be able to get your money back from him," Pebbles continues. "You know, I told you to make sure to get advice from a reputable adviser, not some cowboy operating out of his car boot."

"Yes but how do you know who's a reputable adviser, and who isn't?" asks Freddy.

"Well, Dad, the good news on that front is that regulation of financial advisers is being beefed up. From next July, financial advisers will have to be registered at the Companies Office and authorised by the Securities Commission before they can provide investment planning services.

"They'll have to comply with a code of conduct and be properly qualified. Financial advisers and other financial service providers will have to be members of approved dispute resolution schemes. So it will be easier to sort the wheat from the chaff!"


The content of this document is necessarily general and readers should seek specific advice on particular matters and not rely solely on this document.
If you would like more information on any of the topics in this document, please contact your usual Auld Brewer Mazengarb & McEwen adviser.
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