Investors 'need to take responsibility'

Financial Markets Authority chief executive Sean Hughes says investors need to take some responsibility for their own decisions.

Wednesday, May 15th 2013, 6:00AM 14 Comments

by Susan Edmunds

He told the 2013 Forensic Conference in Auckland yesterday: “I have to say in the sad case of Ross Asset Management many investors were too trusting with their money. They relied on word of mouth recommendations but did little else.. now that's all very easy for me to stand here and say what they should and shouldn't have done and we know that financial markets can be confusing to the unintiated, but Ross does remind us of the need for investors to do their homework and to become more actively involved in their investments…At the end of the day responsibility starts and ends at home - not with Government, not with regulators, not with legislators. You have to take responsibilities for your own financial well-being.”

He said suggestions the FMA was aware of David Ross’s dealings long before the business was raided were “crap”.

Kapiti investment adviser Chris Lee had previously said the FMA should have been on to Ross sooner.

“That Ross sought to manage, virtually alone, with neither peer review nor trutee supervision, funds that once totalled $850 million, is astonishing.”

He said it was even more astonishing that mainstream operators and regulators appeared to pay no attention.

Hughes said the FMA had done what it could. “It took one phone call, one, for us to take action. Any suggestion that we knew about Ross beforehand is crap… This is not, ladies and gentlemen, a nanny state and one where we can stand behind the shoulders of every investor to guide them to what is prudent for them.”

IFA chief executive Nigel Tate, whom Lee has previously criticised as unqualified to comment on Ross, said Hughes was correct that investors needed to exercise their own agency.

“Sean is being pretty blunt here but there must be some time when the investors take a look at their processes when deciding who to take advice from. Again this is easy to say but with the level of consumer financial literacy as low as they are, it is very difficult for the investors to make a truly informed decision.”

He said the FMA had acted appropriately with Ross. “They acted swiftly to close him down as soon as they were made aware that there was an issue, it’s very easy in hindsight to suggest that they should have known more sooner, my questions would be how and from where? David Ross met the requirements for authorisation and got through Standard Set C with relief via the accountants window. If anything this is an area that the legislators could have done better with but this is not the FMA.”

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Comments from our readers

On 15 May 2013 at 8:50 am Ally said:

Nigel Tate has hit the nail on the head as to where the blame for the David Ross fiasco should lie i.e. with the Code committee for gullibly allowing the Accountants lobby group to convince them to grant accountants (like Ross) exemption from Standard Set C. Red flags would have been raised if Ross had to submit clients files for assessment. But he didn't, so he sailed on through the process.....So the blame is with the Code committee. Nevertheless, it is a shame to see the bureaucrat behaviour from Mr Hughes i.e. demanding more regulatory powers and more money to run his shop in an effort to cover up the FMAs part in the affair. It was also interesting to see Mr Hughes take "full responsibility" but still remain in his job: a politician caught in this position would resign.

On 15 May 2013 at 9:39 am Tom said:

About time someone said it out loud! Heaven forbid that people have personal responsibility. After years of the Labour "Nanny knows best" policies maybe we are going to see more acceptance of personal responsibility! Or bringing back school lunches.....

On 15 May 2013 at 9:52 am Dirty Harry said:

Is this the same Mr Lee that famously wrote about the Church case on his own blog, while simultaneously being the "other adviser" Armitage had been consulting? The same Mr Lee who recommended Provincial Finance prior to it going under, and then carried on with North South Finance, Strategic Finance, Hanover and, South Canterbury Finance?

Why wasn't Mr Lee blogging viciously about Ross prior to the FMA swooping? Was it He who made that phone call to the FMA? Indeed, at the time he was going on about Lance Armstrong and how inflation is measured. That this man regards himself as fit to comment in any way on these matters - that, sir, is truly astonishing.

On 15 May 2013 at 1:21 pm Independent Observer said:

The problem with hindsight is that we are all correct.

The reality is that Ross was a villain (irrespective of how he managed to operate in the industry), who managed to dodge the attention of the Regulator. Whether this was through luck or management will be tested – although the likes of Lee and co should be careful about throwing stones…

On 15 May 2013 at 5:56 pm brent sheather said:

Well that is possibly the one thing that Nigel Tate and I will ever agree in...see 10 Jan article..Ross affair highlights problem with code but we could have gone further and acknowledged that it was a mistake exempting 99% of advisers from standard set c...and yes I had to do it.

On 15 May 2013 at 7:08 pm Clint said:

Chris Lee is as funny as. I remember reading on Stuff that: "Kapiti investment adviser Chris Lee said Mr Ross was respected as an investor in small mining stocks."

On 16 May 2013 at 9:47 am R1 said:

Given RAM's ability to cover the scheme up for a long time I suspect he would have breezed through Set C with some dummy client files; its not possible to regulate to catch crooks before they offend. In other industries where client safety (here we are talking about financial safety) is the focus, external, independent audits of suppliers (read advisers) is the way that quality is assured. I would think that if the FMA spent its energy on this approach there would be many very nervous providers and the standard would lift pretty quickly either by exiting those that are shonky, upskilling those that are not quite there and making the public aware of those not meeting the standard and those that do. This approach is part of a total quality management approach which is essentially what the Code and FMA imply in their standards. Why not make it a more explicit and be able to assure investors of the industry's standards? It would cost in the short term but "pay dividends" for all stakeholders in the long term.

On 16 May 2013 at 10:49 am brent sheather said:

R1 these are treasonable thoughts..are you trying to wreck the industry model ?? I know who you are too.

On 16 May 2013 at 12:37 pm Ally said:

Where does Brent Sheather get the idea "99% of advisers were exempt from Standard Set C" ? The exemption essentially only applied to accountants and CFPs. And I doubt whether David Ross would have "breezed thru SSC with some dummy files". More likely, I suspect, is that Ross thought the game was up when regulation was brought in. But then he was given a reprieve when the Code Committee gave him exemption from SSC (after lobbying from the Accountants society. But for that, any competent SSC assessor would have found him out and he would not have been authorised. But that doesn't get the FMA off the hook. After he *was* authorised, they missed him in their adviser review process because, instead of asking AFAs for "market intelligence", they were asking "is your CPP plan up to date"...

On 16 May 2013 at 2:14 pm brent sheather said:

Sorry I didn't make myself clear so...what I meant was exempting 99% of CFPs was a mistake. I wonder what percentage of CFPs recommended finance company debentures..that 99% figure keeps cropping up doesn't it..and if some CFP readers didn't..congats yr in the 1%.

On 16 May 2013 at 3:38 pm R1 said:

Ally, we are both speculating on what may have happened but I stand by my statements that you cannot regulate to catch crooks and auditing of actual systems and client files is much harder to circumvent and use of random audits makes it near impossible as happens in the pharma industry. It would never be cost justifiable to go to that level of quality assurance but a simple compliance audit system conducted by the appropriate authority (FMA) could provide real value. Random audits are best and those that know they comply can sleep well.

On 16 May 2013 at 6:13 pm Ally said:

R1. Point taken.....But my point was that Ross would never have been authorised (and thus effectively unable to operate) if he had had to pass the SSC qualification i.e. submit files for assessment. As any AFA who went thru the assessment process knows, it was pretty thorough. No way would Ross, with his business model, have got thru. But, alas, he didn't have to be assessed because the Code committee gave accountants a free pass (for reasons never explained at the time.)

On 17 May 2013 at 9:29 am Anon said:

One thing the industry really needs to address is this constant slagging off amongst advisers; those who consider themselves better than others. If there is a problem with one individual no matter the industry it doesn't make all other individuals qualified the same way bad. Give it a rest - please!

On 17 May 2013 at 11:50 am brent sheather said:

Sorry but I resent having to go through huge security at airports because of the actions of some fools back in 9/11 and now I'm suffering compliance costs and wasting time on stupid CPD because of some local miscreants who couldn't do their jobs properly when finance co debentures came calling..i feel the criticism is well deserved and if it preempts more stupidity all to the good. Rgds Brent

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Investors 'need to take responsibility'

Financial Markets Authority chief executive Sean Hughes says investors need to take some responsibility for their own decisions.

Wednesday, May 15th 2013, 6:00AM 14 Comments

Comments from our readers