Consumers unwilling to face reality of failing investments
Members of failing investment schemes are unwilling to consider they might be in trouble if they are still seeing positive returns, making it hard for the regulator to crack down early.
Appearing before the Senate Economics Committee, Australian Securities and Investments Commission (ASIC), senior executive leader for insurers, Rhys Bollen, was asked why ASIC had not investigated the failing Sterling Income Trust earlier. Bollen said it was difficult to convince people of problems at an early stage if they were still seeing positives from their investment.
“If you ask the investor ‘are you happy?’, and they have the benefit of a roof over their head and they’re living in the residence then they have no reason not to be happy,” Bollen said.
“It’s like if you went to the passengers on the Titanic in the main dining room and asked if they were having a pleasant journey. They would say ‘yes’ but the fact of the matter is there still aren’t enough lifeboats and it is a tragedy waiting to happen.”
ASIC chair, Joe Longo, added people had viewed the investment as attractive which made it difficult for them to accept that it was not as good as they expected. Earlier in the day, Ben Marshan, head of policy, strategy and innovation at the Financial Planning Association of Australia, had told the committee investors viewed the scheme as “their dreams were coming true”.
Longo said: “If things are going smoothly at that moment, it’s very hard for someone to disrupt that decision. If things are going well, they don’t want someone like me or ASIC coming along and telling them they have made the wrong decision and they shouldn’t be enjoying those returns.
“There’s a real ambivalence on the part of investors to face a reality that they didn’t expect to have to face.
“With the benefit of hindsight and knowing what happened afterwards, we could have moved more quickly.”
AUTHOR
Laura Dew
Recommended for you
The new financial year has got off to a strong start in adviser gains, helped by new entrants, after heavy losses sustained in June.
Michael McCorry, chief investment officer at BlackRock Australia, has detailed how investors are reconsidering their 60/40 portfolios as macro uncertainty highlight the benefits of liquid alternatives.
Having reset its market focus to high-net-worth advisers, Praemium’s administration solution has been selected by Bell Potter in a deal that increases the platform's funds under administration by $6 billion.
High transition rates from financial advisers have helped Netwealth’s funds under administration rise by $3.7 billion in the fourth quarter of FY25.
