Bad times are gone: Dodds
Clients of financial advisers should feel confident that the “horrible times” of the finance company collapses are gone and will not be repeated, an adviser association boss says.
Monday, August 17th 2015, 6:00AM 
8 Comments
by Susan Edmunds
It comes as a Napier couple suing their former adviser after losing about $1.6 million in a number of finance companies had most of the claim struck out.
Heather Smith and Andrew Martin lost money in Dominion Finance, Irongate Property and NZ Finance Holdings. They invested in 2005, 2006 and 2007.
They took a negligence case against Wellington advice firm McDouall Stuart.
The case came down to timing. Last year, the defendants applied to have the claim struck out because it was out of time under the statute of limitations. An associate judge who first heard the claim refused because he disagreed.
The defendants then appealed, saying the losses were suffered when the investments were made, not when the companies collapsed. On rehearing recently, the judge said the associate judge was incorrect and struck out all the breach of contract and negligence causes of action because they were out of time.
Only one cause of action was allowed to continue, a claim in equity against McDouall Stuart on one of the investments.
The couple said their adviser, Lloyd Singleton, had not exercised the standard of care and skill expected of a reasonably competent and professional adviser. As a result, they had made riskier investments than they otherwise would have.
They wanted $600,000 in damages, plus interest and costs.
IFA chief executive Fred Dodds said it was a horrible situation for all involved.
But he said it was a very different environment at that time - prior to the finance company collapses, investors were chasing returns in a much more unregulated industry.
Financial advisers would have, in some cases, relied on ratings from firms such as Rapid Ratings, which entered the New Zealand market and rated 14 finance companies.
“Let’s learn the lessons. The world has certainly changed since then. All the [finance companies] had to do was put out a prospectus and an investment statement. But they were horrible times and they will never be revisited. You can’t blame the client [for taking the court action] $1.6 million is an awful lot of money.”
He said the industry could never say it was certain it had got rid of unscrupulous operators but it should be seen as positive that advisers such as David Ross and Tony Mount had been dealt with.
IFA members were given the message that business ethics should be a major consideration in their operations, he said.
There have been few court decisions on adviser negligence cases. Most have settled out of court.
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Comments from our readers
After the 1987 share market crash finance companies crashed, after the 2008/9 recession finance companies crashed, and you can bet your boots finance companies will again crash when the next big recession comes along.
It will happen again. Some history here http://www.stuff.co.nz/sunday-star-times/business/776473/Lessons-of-the-past
In 2004 there was a surplus of money in our economy and many finance companies became deft in dealing it to the public. Forget the regulations, a new generation of adolescent investors will emerge whose rapacity will make them easy prey to predatory usurious money-lenders. The subsequent decline in investor confidence in the market will start a fresh decline in short term funding to finance longer term debt.
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