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.”
Recommended for you
Sharing his reasoning in joining the FSC board, WT Financial chief executive, Keith Cullen, believes “product and advice cannot be separated” from each other in the current environment.
The Emerge Foundation, a charity run by financial advisers and fund managers, has announced a scholarship program to help veterans transition into tertiary education.
In an open letter, Sequoia chief executive Garry Crole has hit out against shareholders “with a personal axe to grind” as he fights for his job ahead of an EGM.
The JAWG has announced it is in talks with Treasury around five “core principles” to strengthen the education standards for new entrants to the financial advice space.