30% return annually....yeh right!

[BIRMANBOY]

Amazing that we see a constant stream of failed and or fraudulent investment schemes that just keep going on and on and on. Latest one being investigated is Ross Asset Management in Wellington. Evidently a respected advisor and his fund was started in 1989. Unknown what the problem is as its early days but one investor was quoted as saying that annual returns of 30% was not uncommon. Hope its not going to turn out to be another Ponzi. You would think that investors getting 30% returns would be wanting to ask....how the hell can I be getting such a great rate.....Dont mention the war and dont ask questions. Head down, bum up and hold your breath.

[Sauce]

Nice post Birmanboy, I agree.

I have been hearing the rumours about Mr Ross also.

Cheers

Sauce

[BIRMANBOY]

I meant to add, since this is a thread for "investing strategies"...what sort of investor would reasonably expect to get the purported 30%...Is that a smart investor? Does that fall into the OMG strategy. Also more to the point where the devil are the checks and balances and audits done that should prevent these from going on for years. Surely they dont happen overnight? Why is it that this has been allowed to go on and on and on? Not just NZ but everywhere...? You would have thought that every managed fund or investment fund or whatever entity that "takes care of" other peoples money would have to be audited by Govt. CPA every year at a minimum to verify the honesty of their efforts. And if they are WTF ...why are they not being picked up earlier? And if they are not being audited they sure as hell should be. Where is the FMA? This is a list of current cases before the court
Finance Company cases before the CourtCurrent at 3 October 2012
Contents

Five Star Consumer Finance and Five Star Finance (http://www.sharetrader.co.nz/#Five Star Consumer Finance And Five Star Finance Group)
Nathans Finance (http://www.sharetrader.co.nz/#Nathans Finance)
Bridgecorp and Bridgecorp Investments (BIL) (http://www.sharetrader.co.nz/#Bridgecorp and Bridgecorp Investments (BIL))
Lombard Finance & Investments (http://www.sharetrader.co.nz/#Lombard Finance & Investments)
Capital + Merchant Finance (http://www.sharetrader.co.nz/#Capital + Merchant Finance)
Dominion Finance Group and North South Finance (http://www.sharetrader.co.nz/#Dominion Finance Group and North South Finance)
Belgrave Finance (http://www.sharetrader.co.nz/#Belgrave Finance)
Hanover Finance, United Finance and Hanover Capital (http://www.sharetrader.co.nz/#Hanover Finance, Hanover Capital & United Finance)
National Finance (http://www.sharetrader.co.nz/#National Finance 2)
South Canterbury Finance (http://www.sharetrader.co.nz/#South Canterbury Finance)


The system that has allowed this to happen is obviously very badly admiinistered or the laws that it is working with would appear to be inadequate for what needs to be done.

[Lizard]

I had a quick look on the companies office, including all the "other registers" that include unit trusts and the like - could not find published accounts for any of the entities that are listed on the FMA website (https://www.fma.govt.nz/laws-we-enforce/enforcement/prosecutions-and-proceedings/ross-asset-management-inquiry/) as covered by this list:


Background
On Friday 2 November, the High Court in Wellington froze the assets of David Ross of Ross Asset Management Limited and the following related entities:

• Ross Asset Management Limited
• Bevis Marks Corporation Limited
• Dagger Nominees Limited
• Mercury Asset Management Limited
• Ross Investment Management Limited
• Ross Unit Trusts Management Limited
• United Asset Management Limited
• McIntosh Asset Management Limited
• Chapman Ross Trust
• Woburn Ross Trust


I would not be too quick to write off the possibility of 30% returns in some years (the guy seems to have been known for investing in spec mining shares, so was working at the end of the spectrum where it may have been possible for a few years with a limited amount of funds, though not for the entire period since 1989). However, I think at a minimum, before I invested in any fund, I'd be wanting to check for reliable auditors, publicly available accounts or prospectus, trustee and registrar... and, these days, an email address and web-site should be the norm for any credible outfit.

The FMA was set up in response to finance company collapses under the "system that has allowed this to happen". That they appear to have been fairly prompt to act in response to investor concerns (first notified in August?), suggests that changes to the system are working.

[BIRMANBOY]

I see the FMA was set up in 2011 so yes appears to have been an improvement on previous situation. Problem seems to be still " stable door closed after horse already bolted". It would be more helpfull if these issues could be picked up before the event and not simply in response to investor concerns. Whatever the rules/laws/regulations are they appear to be either inadequate or not enforced in a proactive manner. Obviously there is responsibility for the investor to do due diligence but smooth talkers and dodgy accounting are the tools in trade for some of these outfits and the average investor is a lamb to the slaughter. There should be annual WOF issued by FMA and it should be stringent, merciless and all encompassing and also paid for by the recipient. THis at least would shorten the time to damage.
I had a quick look on the companies office, including all the "other registers" that include unit trusts and the like - could not find published accounts for any of the entities that are listed on the FMA website (https://www.fma.govt.nz/laws-we-enforce/enforcement/prosecutions-and-proceedings/ross-asset-management-inquiry/) as covered by this list:



I would not be too quick to write off the possibility of 30% returns in some years (the guy seems to have been known for investing in spec mining shares, so was working at the end of the spectrum where it may have been possible for a few years with a limited amount of funds, though not for the entire period since 1989). However, I think at a minimum, before I invested in any fund, I'd be wanting to check for reliable auditors, publicly available accounts or prospectus, trustee and registrar... and, these days, an email address and web-site should be the norm for any credible outfit.

The FMA was set up in response to finance company collapses under the "system that has allowed this to happen". That they appear to have been fairly prompt to act in response to investor concerns (first notified in August?), suggests that changes to the system are working.

[CJ]

I have been hearing the rumours about Mr Ross also. Where his funds audited??

Is that the check that investors should do to confirm that the fund isn't a ponzi.

[BIRMANBOY]

I dont know if they were audited but I suppose an independant accountant should have been able to see potential problems. Not being an accountant I cant answer with any degree of certainty. If there is an accountant on the forum maybe they can shed some light on that. I understand one of the distinguishing characteristics of Ponzi schemes is they are totally reliant on fresh or existing cash to provide "returns" to existing punters. They cannot go on if outgoings to investors exceed incomings. In order to "encourage" fresh funds they always stress cash will grow faster/returns will be bigger if money is left in and further cash put in. The paper work showing big gains is always impressive and optimistic but vague as to actual specifics. Shuffling cash well is all it needs...and willing investors "letting it run". I suppose one defense is periodically taking all of the capital and all of the returns out but generally this is discouraged (obviously). When in doubt...take it out. Also I guess you would ask...if they were audited, by whom and what if any culpability the accountants had?
Where his funds audited??

Is that the check that investors should do to confirm that the fund isn't a ponzi.

[Lizard]

I see the FMA was set up in 2011 so yes appears to have been an improvement on previous situation. Problem seems to be still " stable door closed after horse already bolted". It would be more helpfull if these issues could be picked up before the event and not simply in response to investor concerns. Whatever the rules/laws/regulations are they appear to be either inadequate or not enforced in a proactive manner. Obviously there is responsibility for the investor to do due diligence but smooth talkers and dodgy accounting are the tools in trade for some of these outfits and the average investor is a lamb to the slaughter. There should be annual WOF issued by FMA and it should be stringent, merciless and all encompassing and also paid for by the recipient. THis at least would shorten the time to damage.

Considerable new powers and controls have been put in place with the advent of the FMA and no doubt more safeguards will emerge as time goes on. However, there is always going to be some conflict between risk and freedom to invest as you wish. The more controls are put around what investors can choose to invest in, the more expensive it becomes - and the more everyone is forced down the same, decidedly average path provided by most AFA's and funds.

In the end, it is very difficult to stop anyone taking money off investors illegally if investors are naive enough. However, it is to be hoped that most people who have acquired money have learned a few lessons in the process and understand that a prospectus and audited annual accounts are important documents - and if they don't understand these for themselves, then perhaps they should either only invest with the advice of an Authorised Financial Advisor, educate themselves, or only invest money they can afford to lose.

In this case, I will watch with interest to see what the underlying problem is and how it occurred. I guess we should get the initial report from PWC next week to provide further insight as to whether it was particularly dodgy, or just a victim of neglect as a result of the owner's ill-health (and perhaps a fall in value of the kind of spec mining stocks he may have been investing in).

[Xerof]

Can someone tell me how he was able to take $439m from the public without a prospectus?

was it the same way Hubbard did with Aorangi et al?

[Anonymous]

then perhaps they should either only invest with the advice of an Authorised Financial Advisor.



Can someone tell me how he was able to take $439m from the public without a prospectus?

was it the same way Hubbard did with Aorangi et al?

I understand he did have a prospectus. Do they have to be registered somewhere and publicly available? I also see Ross is listed as an Authorised Financial Adviser on the FMA website.

Will be interesting to see how this plays out.

[BIRMANBOY]

Bottom line is anyone who offers a financial product or services needs to be audited...Initially before they hang out their shingle and on a regular basis to maintain their ongoing duty of care. They should have to pay a substantial registration fee and should have to pay annually to renew their "license" and get their new years WOF. Risk and freedom to invest as people wish is great but it should all be done on a level playing field and in full view and subject to inspection.

[janner]

Totally agree Birmanboy..

My wife is typical.. No..no.. I leave it all up to you.. As I try to explain.. Leaves her wide open to vultures...

[Stranger_Danger]

30% per annum is definitely possible - for a while. However, I doubt very much it has been happening here lately.

Why?

(a) Seeking high returns, and managing other peoples money, do not go hand in hand. I know this sounds silly because that is what an investor says they want to pay for, but it simply doesn't work.

To get 30% per annum over a long period, the record isn't going to read 30%, 30%, 30% etc etc etc. A record like that would almost certainly indicate something dodgy is happening.

It is more likely to read +85%, +40%, -35%, -12%, +134%, -40%, +80% etc etc.

The sort of person that hands over their money to others to invest is usually the sort of person that can't handle that sort of volatility and wants to take back their money at the bottom, not realising that a strategy aimed at 30% is inherently volatile and risky and bad years are utterly guaranteed.

(b) 400mil or so under management is starting to get to the level where you shouldn't even be aiming for 30%.

Many of the strategies you need to employ - under-diversification, overweighting small caps etc etc - start to fail at those sorts of numbers.

This is why Buffett has always said - and I believe him - that he could do 50% per annum with 10 million, but has continually reset expectations downwards as he got bigger.

--

My instinct (and I have zero insider info here) and that this guy probably did start off honest and and could well have achieved those high returns for a while.

However, as his investors aged, and their demand for cash grew, given strategies that involved illiquid positions in small caps, even if we assume 100% honesty and integrity, you can easily see how problems could occur, just because of the size outgrowing the strategy.

Bottom line : Manage your own money, yourself. If you don't enjoy doing so, give it to the poor.

[Stranger_Danger]

Shuffling cash well is all it needs...and willing investors "letting it run". I suppose one defense is periodically taking all of the capital and all of the returns out but generally this is discouraged (obviously). When in doubt...take it out.

For any newbies reading, this is very good advice.

Term deposit maturing? Cool - go through the motions of sending it to another bank, even if the rate is identical. You'll establish an extra relationship, have to follow through the accounting etc etc. You'll find out if you're where you thought you were - or if your guy is actually Stephen Versalko.


Colleague at work says they're happy to pitch in and do overtime, if you ever need it? Cool, need it soon - test it out.

Girlfriend says she doesn't mind you drinking with the guys? Cool - do it soon, do it often and for gods sake, do it well before you get married.

Bottom line : Words are really easy, actions say it all.

Any situation where you're led to believe something will *always* be forthcoming, in future, if only you ask, isn't worth a damn thing unless you are regularly testing it to ensure it remains true.

[BIRMANBOY]

Yes SD ..wise words..(articulated more precisely than I have so thanks.)...as a side issue its interesting that to my (limited) knowledge they dont really teach fiscal responsibility or its like until you get into University and you take some accounting or finance courses. Would be good value to have a course /seminar on some of this be available to college students so larger proportion of folk have some previous exposure.
30% per annum is definitely possible - for a while. However, I doubt very much it has been happening here lately.

Why?

(a) Seeking high returns, and managing other peoples money, do not go hand in hand. I know this sounds silly because that is what an investor says they want to pay for, but it simply doesn't work.

To get 30% per annum over a long period, the record isn't going to read 30%, 30%, 30% etc etc etc. A record like that would almost certainly indicate something dodgy is happening.

It is more likely to read +85%, +40%, -35%, -12%, +134%, -40%, +80% etc etc.

The sort of person that hands over their money to others to invest is usually the sort of person that can't handle that sort of volatility and wants to take back their money at the bottom, not realising that a strategy aimed at 30% is inherently volatile and risky and bad years are utterly guaranteed.

(b) 400mil or so under management is starting to get to the level where you shouldn't even be aiming for 30%.

Many of the strategies you need to employ - under-diversification, overweighting small caps etc etc - start to fail at those sorts of numbers.

This is why Buffett has always said - and I believe him - that he could do 50% per annum with 10 million, but has continually reset expectations downwards as he got bigger.

--

My instinct (and I have zero insider info here) and that this guy probably did start off honest and and could well have achieved those high returns for a while.

However, as his investors aged, and their demand for cash grew, given strategies that involved illiquid positions in small caps, even if we assume 100% honesty and integrity, you can easily see how problems could occur, just because of the size outgrowing the strategy.

Bottom line : Manage your own money, yourself. If you don't enjoy doing so, give it to the poor.

[winner69]

Can someone tell me how he was able to take $439m from the public without a prospectus?

was it the same way Hubbard did with Aorangi et al?

He was only looking after the money of professional investors .....the ones who know better and don't need looking after

[Xerof]

Oh them....... oh right, so nothing to be worried about then......

jeez, I hope he doesnt hold the same junior explorers as me, Fisk will trash the prices with that sort of volume :ohmy:

[stoploss]

Oh them....... oh right, so nothing to be worried about then......

jeez, I hope he doesnt hold the same junior explorers as me, Fisk will trash the prices with that sort of volume :ohmy:

Might not be anything to trash ........http://www.stuff.co.nz/dominion-post/business/7954664/Hundreds-of-millions-missing-from-fund

[BIRMANBOY]

Not looking good thats for sure. I might start digging around in the backyards of his properties if I was Fisk...Hopefully not all gone on wine, women and arias.
Might not be anything to trash ........http://www.stuff.co.nz/dominion-post/business/7954664/Hundreds-of-millions-missing-from-fund

[Lizard]

Oh them....... oh right, so nothing to be worried about then......

jeez, I hope he doesnt hold the same junior explorers as me, Fisk will trash the prices with that sort of volume :ohmy:

Well at least they haven't found that sort of volume so far... although you can check if your junior explorers are on what they've found so far:
http://www.pwc.co.nz/PWC.NZ/media/pdf-documents/receiverships/ross-asset-management-limited/Appendix-V-PwC-report-to-the-High-Court-of-New-Zealand-Ross-Asset-Management-Limited-and-related-entities-In-Receivership-13-November-2012.pdf

Look to the last few pages.

[BIRMANBOY]

Wow who would want to be an accountant (or receiver) for that matter. Must be incredibly difficult getting to grips with all of that. Thanks Liz. Hopefully the investors will get a portion recovered. Glad I do my own investing thats for sure...knock on wood.
Well at least they haven't found that sort of volume so far... although you can check if your junior explorers are on what they've found so far:
http://www.pwc.co.nz/PWC.NZ/media/pdf-documents/receiverships/ross-asset-management-limited/Appendix-V-PwC-report-to-the-High-Court-of-New-Zealand-Ross-Asset-Management-Limited-and-related-entities-In-Receivership-13-November-2012.pdf

Look to the last few pages.

[Lizard]

I think the worrying part is that he managed to get AFA certified, despite the fairly rigorous demands the FMA put in place. Maybe the FMA need to comment on how he passed the "Adviser Business Statement (http://www.fma.govt.nz/help-me-comply/financial-advisers/how-to-get-licensed/afa-application-resources-and-templates/afa-adviser-business-statement-guide/afa-adviser-business-statement-guide-june-2011/)" part - and whether he ever received a visit under the monitoring requirements: AFA Monitoring and Review (http://www.fma.govt.nz/help-me-comply/financial-advisers/monitoring-and-surveillance/authorised-financial-advisers/).

[BIRMANBOY]

I see they visited some locations in Wellington and Hutt Valley..would be interesting to know which ones. You can understand the difficulties from the FMA point. There must have been an awfull lot of resistance to them..."i've been advising my clients for 20 years ...whats the govt doing poking their nose into my business". "Some callow recent graduate who knows s**t about the real world". Grandfathering clauses are always difficult in the transition periods. Old boys resistant, new ones nervous and the FMA trying to baby the "bad boys" along without causing mayhem and precipitating a crisis.
I think the worrying part is that he managed to get AFA certified, despite the fairly rigorous demands the FMA put in place. Maybe the FMA need to comment on how he passed the "Adviser Business Statement (http://www.fma.govt.nz/help-me-comply/financial-advisers/how-to-get-licensed/afa-application-resources-and-templates/afa-adviser-business-statement-guide/afa-adviser-business-statement-guide-june-2011/)" part - and whether he ever received a visit under the monitoring requirements: AFA Monitoring and Review (http://www.fma.govt.nz/help-me-comply/financial-advisers/monitoring-and-surveillance/authorised-financial-advisers/).

[JPW]

I think the worrying part is that he managed to get AFA certified, despite the fairly rigorous demands the FMA put in place. Maybe the FMA need to comment on how he passed the "Adviser Business Statement (http://www.fma.govt.nz/help-me-comply/financial-advisers/how-to-get-licensed/afa-application-resources-and-templates/afa-adviser-business-statement-guide/afa-adviser-business-statement-guide-june-2011/)" part - and whether he ever received a visit under the monitoring requirements: AFA Monitoring and Review (http://www.fma.govt.nz/help-me-comply/financial-advisers/monitoring-and-surveillance/authorised-financial-advisers/).

As far as I'm aware, an adviser does not need to provide an ABS to the FMA as part of the authorization process. As this is the case, he would not have to have one completed. If the FMA requested his ABS for what ever reason, he would be required to send one to them. You are supposed to have an ABS completed, and handy for the FMA if they wish to review it. Technically speaking, he could get away with not having one at all.

[Lizard]

As far as I'm aware, an adviser does not need to provide an ABS to the FMA as part of the authorization process. As this is the case, he would not have to have one completed. If the FMA requested his ABS for what ever reason, he would be required to send one to them. You are supposed to have an ABS completed, and handy for the FMA if they wish to review it. Technically speaking, he could get away with not having one at all.

I was just going off the FMA website (http://www.fma.govt.nz/media/143464/afa-authorisation-guide.pdf). However, I note from the checklist that, although they are supposed to have an ABS, there is no requirement to actually upload it during the application process, only to acknowledge that there is one.

Other requirements include qualification (the Massey Business Studies Diploma in Financial Planning or equivalent, I think), the two ETITO standards (about knowing the Code, set by a committee), three testimonials from a mix of clients or industry peers that have known you for more than 3 years and having an advisor business statement. There are a few other minor requirements, including fees.

I have to say that the process is a bit circular for new people wanting to enter the industry - having personally completed the Massey Diploma, I thought I might try to get qualified and queried directly with the FMA the requirement to have testimonials from clients when I wasn't permitted to have clients and the difficulty of having an ABS without actually having a business. They advised me to enter the industry via a QFE.

(For the record, I was somewhat put off when I found the only likely jobs that could get me qualified to provide advice on shares and portfolios would involve selling insurance and funds for at least 3 years first - I think I may have failed the "sales aptitude" test!).

[JPW]

I was just going off the FMA website (http://www.fma.govt.nz/media/143464/afa-authorisation-guide.pdf). However, I note from the checklist that, although they are supposed to have an ABS, there is no requirement to actually upload it during the application process, only to acknowledge that there is one.

Other requirements include qualification (the Massey Business Studies Diploma in Financial Planning or equivalent, I think), the two ETITO standards (about knowing the Code, set by a committee), three testimonials from a mix of clients or industry peers that have known you for more than 3 years and having an advisor business statement. There are a few other minor requirements, including fees.

I have to say that the process is a bit circular for new people wanting to enter the industry - having personally completed the Massey Diploma, I thought I might try to get qualified and queried directly with the FMA the requirement to have testimonials from clients when I wasn't permitted to have clients and the difficulty of having an ABS without actually having a business. They advised me to enter the industry via a QFE.

(For the record, I was somewhat put off when I found the only likely jobs that could get me qualified to provide advice on shares and portfolios would involve selling insurance and funds for at least 3 years first - I think I may have failed the "sales aptitude" test!).

Yes that's correct, you just need to acknowledge you have one.

Speaking from experience I can clearly acknowledge you point regarding the process being circular and difficult for new entrants. Personally, I am in the industry and have managed to get almost everything completed through a QFE I work for. I'm in the final stages of becoming AFA now.

It wouldn't be all too difficult to enter the market through a well-established advisory group and QFE who also provides insurance training. From there you can work through the work to become AFA alongside others going through the process with the goal of going out on your own and providing investment advice. The good thing about going through a QFE group, is that they'll have formal advice processes which you would be able to learn. Most of the work involved with becoming an AFA is showing formal advice process, understanding your client and products you are recommending.

Without knowing much about you, based on your comments on this forum you seem very knowledgable and I'm sure the industry would welcome you with open arms. There is a massive shortage of authorized advisers which is well known.

Apologies for going slightly off topic!

[Xerof]

I understand he did have a prospectus.

If thats the case, who are the Trustees and who are the auditors?

I'm afraid I don't have any sympathy for the "chosen 900"...they have brought it upon themselves....greed and blind faith has enabled this to happen yet again

[Corporate]

If thats the case, who are the Trustees and who are the auditors?


This is what I want to know also!!

[Anonymous]

This is what I want to know also!!

Xerof, Coprorate, I haven't actually seen one but I read some comments (I think on the NBR site) that 'investors' had been given a prospectus. The point I was trying to make though, was not if he had one but if there is actually anything behind them anyway. It is not hard for anyone to write a prospectus. I am sure anyone could knock one up in 10 mins. I also thought becoming an AFA was only a matter of passing a few exams but it seems from the above it is a little more involved so I guess there 'should' be some comfort there when dealing with an AFA.

I do have some compassion for the investors however - despite how obvious the signs may have been. It is very easy for people on here to harp on about the basic investment principles but the mere fact that we are on here would suggest we have some understanding and interest in investing. However, obviously there are plenty of wealthy people who wouldn't know the fist thing about investing. So what do they do - ask people they trust (their friends etc) for advice. Find an AFA with a prospectus you trust. The next thing you know you have lost the lot with Ross...

So then how to protect them? I agree with Lizards earlier post talking about the fine line between regulation and costs and personally wouldn't want to see any more costs of regulation added to the industry. However, I am pretty unlikely to be investing in a managed fund anyway.

I just hope that even the most ignorant of investors knew enough not to put all their eggs in one basket. Unfortunately it seems that is not the case.

[Corporate]

I've just done a couple of google searches and the articles I found note that there was no auditor. Surely if you are investing significant amounts of your capital in a managed fund, having an auditor would be one of your prerequisites!

[JPW]

I've just done a couple of google searches and the articles I found note that there was no auditor. Surely if you are investing significant amounts of your capital in a managed fund, having an auditor would be one of your prerequisites!

Lord have mercy!

[BIRMANBOY]

This was my point earlier in the thread. It should be a compulsory audit annually by independant (and qualified Govt. auditor) who would be required to delve into all aspects of the business. If they dont pass...they should be shut down until they are cleared for action. Their ability to offer investment advice and take in funds should be subject to scrutiny much more closely. This at least restricts the damage a rogue advisor/ fund can do to a year instead of building up and compounding over many years.
I've just done a couple of google searches and the articles I found note that there was no auditor. Surely if you are investing significant amounts of your capital in a managed fund, having an auditor would be one of your prerequisites!

[macduffy]

It doesn't seem to have been a "managed fund" but rather investments made on individuals' behalf, often on the recommendation of others. Big amounts, so probably regarded as "sophisticated investors" with all that goes with that esteemed status!

No prospectus, therefore no trustee. No regulatory oversight until complaints to the FMA.

At least, that's how I read it.

[Xerof]

yes, you could well be right there macduffy, they either qualified as close business associates or met the thresholds for 'sophisticates'

which is relatively easy to meet these days - assets of 2 mill and/or income over 200 or 250k, forget which

[janner]

No matter how stupid we on here are with some of our investments.. I think that it would be a frosty friday before advice would be given by any one on here to invest in such a mannner..

Shades of Peter Paul and Mary !!.. When will they ever learn ???