Cold calling is finding a new lease of life as offshore groups seek investors to part with their cash. Yet many of these are either not licensed to operate or even on the right side of the law. Kate Kachor examines the problem and possible solutions.
They might not ride round in creaking carts with garish sign writing or sell strange compounds in dark brown bottles but the modern, investment industry equivalent, of the snake oil sellers are still managing to cause havoc.
Known by many in the industry as well as the general public by their unsolicited emails and phone calls they are best described as pests. They are people employed by international groups who make cold calls into, from outside of, Australia in the hope of finding investors who fall for their selling techniques and may possibly end up losing their savings.
Professional Investment Services financial planner, Ross Smith is all too aware of their techniques, with one of his clients having first hand experience in their dodgy dealings.
“One of my clients was cold called directly by a group based in Bangkok,” Smith says.
“The company, known as The Madison group, wanted to offer my client an off shore account, and asked him to transfer money overseas and through Bangkok to buy biotech securities listed in the US. My client told the caller that he already has a financial planner, and he would discuss it with him,” Smith says.
“The reaction of the Madison caller was, ‘don’t tell your planner, he wouldn’t be interested, go through me instead,” Smith adds.
Smith says his client asked him what he thought about the deal, to which Smith told his client to decline the offer and recommended that if he wanted to enter the overseas investment market that he should talk to a financial planner.
“I told him that people who are trying to get money out of Australia are doing this so they have control over the money. You can never be sure that the money has gone into the recommended security,” Smith says.
Concerned that The Madison group and other groups like them might call his client again, and other Australian investors, Smith contacted the Australian Securities and Investment Commission (ASIC) to seek advice.
ASIC found The Madison group was not a licensed organisation, in regards to selling investment advice, and investors should avoid the group. However, instead of being given assurance that ASIC would take further action, and in turn shut down or caution The Madison Group, ASIC told Smith that since it was outside their jurisdiction, there was nothing they could do.
Smith did not take ASIC’s response lightly. He says the regulator has let individual planners and investors down, claiming they are behaving like a toothless tiger.
“ASIC told me that they are aware of the group, and their cold calling activities, but they can’t do anything with these people, because they are not in Australia,” says Smith.
“They told me that they have done a public awareness campaign, and the group is listed on their web site as one to be avoided by Australians.”
ASIC’s director of communications, Michael Dunn understands where Smith and other concerned investors are coming from. He has been handling concerns and complaints regarding cold calls for many years.
Dunn says unashamedly that the cold-callers are a considerable nuisance, however as they are not based in Australia ASIC is legally bound to police only those in Australian waters. So what solutions does the industry watchdog have for investors?
“Just hang up the phone. That is what we suggest to investors. A lot of the time the group calling does not have a licence,” Dunn says.
“Whenever we hear about these organisations we will check them ourselves and contact the organisation to ask them to stop contacting Australians.”
Dunn says, despite Smith’s comments about ASIC being a toothless tiger, in certain cases ASIC can notify the local authorities in nuisance caller’s home country. He says these authorities might pay them a visit or search the property.
“The bottom line is that the investor has to protect themselves. We urge people to only deal with licensed advisers,” Dunn says.
“In some situations where people have invested a substantial amount of money abroad we have given contact names to people so they can contact the authorities themselves.”
However Smith says this attitude and response is not good enough. He says ASIC should take stricter action and treat cold-calling matters as a serious problem.
“Australians can not afford to lose confidence in placing their capital in international funds which comply with Australian laws. When these offshore pirates have been prosecuted, their photographs, names and their dealer group should be published in the international investment magazines,” Smith says.
“This would act as a warning to others who want to follow in their wake and get away with breaching Australian laws to the detriment to the financial planning profession and fund management industry in Australia,” he says.
The Financial Planning Association (FPA) professional standards investigations manager Michael Butler says Australian investors have to accept that ASIC’s hands are tied.
Butler says even though ASIC is not the lone governing body of FPA members, he says the FPA stands firmly by ASIC’s decision and solution.
“We hold basically the same line as ASIC, just hang up. The higher the returns the higher the risk, if it sounds too good, it probably is,” he says.
Butler says it is highly improbable that overseas swindlers are going to be stopped completely.
He says investors must make sure their Australian advisers legitimately deal with products that are licensed in Australia. At the same time these advisers need to educate clients to know what to look for in an investment opportunity.
“Common sense should prevail, but these schemes are something that you see time and time again. The regulators get on to them and they quieten down and but they eventually come up again,” Butler says.
