Added on 5/11/2007 17:05
You may have seen news reports of two senior executives from the failed Westpoint company who will face court over allegedly misleading investors with labels of “investment bank” in their marketing collateral to raise funds.
It raises the issue of Australian investor awareness and education and why better regulations around disclosure should be put in place for financial institutions offering investment products.
Over a billion dollars in potential investment losses with Fincorp, Australian Capital Reserve, Bridgecorp and Westpoint over the past two years should make investors a little cautious.
There have been plenty of problems with this sort of thing in New Zealand, so much so that their Reserve Bank will in future license large non bank deposit takers as well as bank deposit takers (exempting those taking under $10m) and ensure they have a credit rating...food for thought for Australia too.
MY CALL FOR INVESTMENT EDUCATION
Recent research RaboPlus conducted with the help of global research firm TNS, shows that investors do not read the fine print. Only a tiny 3 per cent of the survey sample of 1043 retail bank customers read the terms and conditions. And yes you are right to think the product disclosure documents are very heavy reading, there is more on my gripes on this particular subject in my second post as I am starting to warm up to the subject!
It is all a bit disturbing, because Australian investors are not undertaking due diligence and appear to be driven by the headline rate only. However, I don't think financial institutions make it easy for investors to see transparently what they are getting into. So often recently we have seen on TV current affairs shows, teary investors who have put all their superannuation into a Fincorp, Westpoint, or Australian Capital Reserve, on the assumption the investment was “a guaranteed investment”? But are now facing severe losses.
Let's face it, offers of higher investment returns easily seduce most investors. The survey confirms this showing that 61 per cent of retail bank customers considered rates or returns as the major reason why they went into an investment.
This brings to light that Australian investors still need investment education about “risk” and “diversification”.
THE TOP TWO BEST INVESTMENT RULES
Understand that higher return investments bring higher risks. It is sensible to spread your capital investments into a number of asset classes – be it cash, fixed income, direct equities, managed funds or property, as a first step.
Do your homework!!!! Research your investment options and look for independent verification such as a rating agencies review – Standard & Poor’s, Moodys or Fitch - of the investment. If there isn't a ratings review then you need to be even more wary.
Find out more about making investment decisions here
http://www.understandingmoney.gov.au/Content/Consumer/FinancialLiteracy/Investing/moreinfo.aspx
I'll be watching the review closely and will bring you updates.
In the meantime, add to my investment rules on your blog and send me the link to publish as an update, or simply post me back rules or comments below.
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