KEY POINTS:
It's been a week of sorry tales from investors in the nation's troubled finance company sector.
The collapse of Capital + Merchant last week appears to be the straw that has broken the camel's back for some who have had money tied up with several failed companies.
Naturally
talk has again turned to who should be blamed for the situation the investors finds themselves in.
A Weekend Herald readers' jury is polled on the issue (page A16 today). Asked if investors had themselves to blame the result was no, but only just. The jury was split 6 to 5.
That seems like a harsh call. But the distribution of blame can shift depending on the question asked.
For example, who's to blame for losing to France in the World Cup? Clearly the buck stops with the players and coach.
But what if you ask who is to blame for the emotional stress and pain suffered by New Zealanders as a result of the World Cup loss, the answer is less obvious. While the players and coach lost a game of rugby, it was the fans who chose to invest so emotionally in the outcome. At that point we should take a look at ourselves and the extent to which we are culpable for making too large an investment in what is ultimately a high-risk game. So too with financial matters. The directors and managers of companies are responsible for the failure of their businesses.
When we look at the pain or distress our financial losses can cause us, we should also look at our own investing behaviour.
But there is a stark difference between the sporting world and financial world. We can't claim to be naive when it comes to the risk and reward involved in World Cup competition. But when it comes to financial literacy, the average New Zealander is clearly still not well educated.
The risk to reward equation was not well understood, with finance company investors prepared to lend their money for high risk property development on the basis of marginal returns above the bank deposit rate.
New Zealanders having grown up in an environment of relative plenty have never been interested enough to give financial matters the kind of time they give to sports. Instead many investors have opted to trust financial advisers. And that leads us to another party that must take some of the blame for the events of the past six months.
The often unqualified advisers who took backhanders from finance companies in return for bringing in new investors to the fold. That they deserve to take a measure of blame is so obvious it hardly bears mention. They were operating within the law. A law that failed to protect naive investors.
The Government has acknowledged that the law wasn't good enough and has changed it. The new regime comes into effect in February. Too late. About five years too late.
The Government has been aware of the problem for at least that long.
We know that because of a press release on Commerce Minister Lianne Dalziel's website that highlights the need for change. It also promises to enact that change.
The release, titled Financial Advisers Regime to be Tightened, states that Dalziel and the Government are "committed to protecting investors from unscrupulous investment advisers, and had asked officials to examine the costs and benefits of introducing some form of licensing regime". The date of the release: December 12, 2002
* Liam Dann is business editor of the Herald.
