CBD apartments are on the brink of roller coaster ride and consumer campaigner Denise Brailey reckons ASIC is not doing nearly enough to protect consumers.

So why did large numbers of investors race towards the edge of the property precipice? Greedy members of the financial planning sector coerced thousands of families into unsafe investments. The federal regulatory authorities and the Financial Planning Association did their best to protect the industry image.

The next scam is underway – the Trezzanine Mortgage scandal. When over-valuation of properties reach third mortgage investment, people are poised to lose 100 cents in the dollar. Yet these innocent consumers are told by their financial advisers that their investment is “safe and secure”.

It was a scandal we did not have to suffer. Off the plan buyers and mortgage lenders were unsophisticated citizens looking for quality advice. Fallout from these scams will more than likely eclipse the American savings and loan scandal of the mid eighties.

RECA gave warnings to ASIC in 1999 that the mezzanine mortgage scams would take the place of the solicitors mortgage scandal as funds dried up and developers began to feel pain. Those warnings were completely ignored.

Consumers were left at the mercy of the dishonest conduct in the finance sector. ASIC Commissioners admitted they were aware and concerned of the problem and would be closely “monitoring” the situation. In 2001 they announced that if these financial products were being sold to Mum and Dad investors, then it was indeed their jurisdiction. They agreed to seek legal advice. In the interests of consumers, that advice should now be made public.

Crikey readers were given those warnings in 2001 in a series of articles provided by RECA after 3 years research into massive losses by consumers who were enticed into these investment scams by licensed professionals.

Last week, Peter Weekes (Age 8/4/04) reported ASIC’s latest concern-raising effort that “Financial Planners often recommended expensive, poor returning investments simply to boost their own pay packets.” It’s official, ASIC has finally taken notice of conduct within the industry that consumer groups have been grappling with for years.

The question is: when did ASIC first become aware of consumer complaints of a serious nature which pointed to dishonesty amongst the financial planner sector? Documents suggest regulatory awareness of a looming crisis was as early as 1995.

It has been obvious for the past decade that financial planners in a commission-driven environment would attend to their own interests before that of consumers.

ASIC have discovered that financial planners “generally gave poor advice.” It is now official. The watchdog grand master plan after a decade of neglect, is to now use their latest report as a benchmark – wait for it – “for continuing surveillance”. The Financial Planning Association bleats that its members have lifted their game through a series of education seminars, funded and run by ASIC. Flawed policies that education rather than enforcement would better protect consumer interests, have been the root cause of the massive increase in millions of dollars of lost consumer funds.

In 2000, the announcement from the Federal Government and ASIC that $500 million had been lost through bad practice by solicitors, brokers and planners. This came as no surprise to RECA. We warned ASIC and their political masters in 1998 that consumers were at risk when dealing with some professional thieves who were licensed by ASIC.

During 200-1004, taxpayer dollars funded “education” junkets around Australia by the Commissioners of ASIC and their FPA buddies. Current losses in the Mezzanine Mortgage scandal suggest that a further billion dollars of super funds, equity in homes and retirement savings have gone missing. Obviously this “education policy” has been a disastrous mistake, with consumers paying the worst price imaginable – the loss of their homes.

ASIC’s American counterpart, the United States SEC, have finally embraced the right idea. Current activities include rounding up dishonest company directors, that wreak havoc on innocent citizens, and throwing them in jail. It took two decades of neglect to get to that point, but at least prosecutions are now in earnest.

Sadly, here in Australia, the regulator invites the big name directors in for coffee and Tim Tams (Arnotts or Dick Smith) devising a plan to keep the worst offenders in business.

ASIC boasts 69 prosecutions under David Knott’s hopeless regime. That equated to only 3 prosecutions per state per year. It is not good enough. Whilst the current mortgage scandal rages out of control, ASIC is getting tough on small time operators. News ASIC chairman Jeffrey Lucy announced he would not be going after the property spruikers and their financial planning mates. Security Dealers must have whooped for joy.

Consumers are gravely in need of serious protection from corporate thieves. We know the names of those involved, but are unable to warn our own members, except via the media, whenever a brave consumer victim has the courage to speak out. Those same names reappear time and again, registering even more companies and structures with the same regulatory body – ASIC.

A Royal Commission into ASIC’s gross neglect would be one way to learn the awful truth and properly prepare ourselves for the next wave of financial losses.

Australia has zero consumer protection right now. Instead we pay $200 million per year for industry protection. The time has come for decisive action. Consumers have suffered long enough.

Denise Brailey
President
Real Estate Consumer Association (Inc)