Investor surprised by lack of adviser lawsuits

A Whangarei engineer who took legal action against his financial adviser over a failed Bridgecorp investment says he’s surprised more investors haven’t taken the same approach.

Monday, August 27th 2012, 10:43PM 6 Comments

by Niko Kloeten

Arthur Smith, who is just shy of his 70^th birthday, is one of a number of investors who have gone after their financial advisers after being sold investments in finance companies that subsequently collapsed.

But while other cases involving AFAs Carey Church and Rodney Hartles have resulted in High Court judgments to be picked over by the legal fraternity and other advisers, Smith's High Court claim against his adviser's former employer ended up settling out of court.

Smith said he couldn't discuss the settlement due to confidentiality, but he said his initial action was in the Disputes Tribunal, where he argued the adviser had breached the Fair Trading Act by selling him a "faulty" product.

"To me it was reasonably obvious with the Fair Trading Act and Consumer Guarantees Act available to people, but no-one thought to sort of suggest that the products weren't up to scratch. I tried all the normal banging on doors; I was determined make somebody accountable."

He ended up being awarded nearly $15,000, which he used to fund a wider case against the adviser's employer. Although he wouldn't name the company, Good Returns understands from other sources that it was Tower Financial Advisory Services.

Smith said like many fellow finance company investors he knew very little about investments so was reliant on getting good advice.

"The advisers generally end up with you having so much trust in them because they are doing something you know nothing about. If they tell you to jump you jump," he said.

However, he said he was surprised more finance company investors hadn't taken action against their advisers.

Some investors were put off by cost and a number of people he'd spoken to hadn't even heard of the Fair Trading Act, he said.

Smith also had strong words for the finance company directors and the regulators who presided over the collapse.

"If you look on the back of a prospectus it says it's approved by a government department; why aren't they liable?"

Niko Kloeten can be contacted at niko@goodreturns.co.nz

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Comments from our readers

On 28 August 2012 at 7:30 am Anon said:

This person seems ready to blame anyone but himself. While it sounds nice to say that you have such trust in your adviser, and don't know anything yourself, that is a cop out for being financially unsensible. While the adviser may have provided bad advice, and been liable, saying that the government should further be liable shows a desire to sue (apparently) everyone without any regard for personal responsibility. This sort of investor is exactly why you need disclosure rules and documented processes: not because you may even need to change your advice, but because someone is prone to sue you whenever they feel they can. So we all pay higher compliance costs...joy...

On 28 August 2012 at 12:20 pm Really? said:

As a sharebroker in the mid 2000's, we spent a lot of time researching finance company balance sheets and credit ratings. I had a new client sit down with me who had $2m invested in nothing but finance companies.
I went through every single company and advised him to diversify as his current strategy involved a lot of risk (with companies who had flimsy balance sheets), but he made the decision to stay where he was, no doubt blinded by the returns and the promises of his current adviser (if I recall correctly, at Money Managers).
I often wonder whatever happened to this man and his $2m, sadly I bet he doesn't have a lot of it left. So yes, some people are the architects of their own downfall, but they also bought into a lot of BS from advisers who happily flogged these investments on the back of very nice commissions.
I did the same exercise for my father-in-law a few years ago - and his investments were in equally bad shape - by the time I got involved he'd already been stung 3x but we managed to save his other funds. A lot of these older people don't understand modern day investments and rely on (and pay) advisers to help them. Surely they have a duty to make sure the investment fits the client?

On 28 August 2012 at 1:47 pm traveller said:

I support "Really?". I had a client back in the early 2000s who went on and on at me about putting money into finance companies and contributory mortgages. I refused and eventually he sacked me and went elsewhere and I have never seen or heard from him since. I also wonder what his financial situation is now.

On 28 August 2012 at 3:16 pm w k said:

@traveller: you should have sacked the client first.

just my 2cts worth:
rule 1: know your client/prospect.
rule 2: if you think they look like trouble, you're probably right, dump them first, before trouble troubles you.

On 31 August 2012 at 1:35 pm Old Traveller said:

It seems to be common knowledge in Whangarei that Arthur Smith's adviser was Kelvn Sym who at that time was the principal of Northplan and the monies were invested in Bridgecorp.

On 9 September 2012 at 2:25 pm traveller said:

wk yes, I probably should have seen the writing on the wall but with clients you have had for 10 years+ one expects to be able to get them to see sense. It just shows how fragile even long term relationships can be.

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