Think be­fore trust­ing get rich quick schemes

Central Leader - - NEWS -

I’ve just had the plea­sure of watch­ing a first-class prop­erty spruiker work a room­ful of New Zealan­ders seek­ing ‘‘lazy’’ ways to be­come rich.

I went along with a friend who had re­ceived an in­vi­ta­tion through the post of­fer­ing him the chance to make his for­tunes by in­vest­ing in Amer­i­can houses.

Us­ing tested tech­niques to pacify the room and pre­vent awk­ward chal­lenges to the up-tempo pre­sen­ta­tion, the young Amer­i­can prop­erty guru did well in get­ting folk to sign up to a $2800, three­day ed­u­ca­tion weekend which would teach them the ‘‘se­crets’’ of how to buy United States prop­er­ties from an ‘‘af­fil­i­ate’’ of the com­pany he rep­re­sented.

The com­pany de­liv­er­ing the sem­i­nar was an in­ter­na­tional op­er­a­tion sell­ing United States houses to peo­ple in Aus­tralia, Bri­tain, Sin­ga­pore and else­where but we’ve had sim­i­larly skilled lo­cal prop­erty spruik­ers. Some are still around. Some amaz­ingly ran into fi­nan­cial trou­ble dur­ing one of the big­gest prop­erty booms in New Zealand his­tory.

Now I’m not go­ing to lec­ture you on the wis­dom of buy­ing over­seas prop­er­ties from an over­seas­domi­ciled com­pany which must nec­es­sar­ily add on a mar­gin (or buy at a deep ‘‘dis­count’’ to the ‘‘full mar­ket value’’) be­fore sell­ing it to you.

But I am go­ing to muse on how to achieve trust in a fi­nan­cial part­ner. Some­times it is rel­a­tively easy. Take a mort­gage from a bank. If you meet pay­ments, you can pre­dict with al­most 100 per cent cer­tainty how the bank will be­have to­wards you.

The bank is based in this coun­try, and bar the oc­ca­sional prod­uct not sell­ing and fail­ure to pay its full taxes, it’ll be­have in a fairly straight­for­ward man­ner.

It is reg­u­lated here, is sub­ject to lo­cal courts and the chances of it liq­ui­dat­ing to avoid pay­ing a court or­der are vir­tu­ally zero.

There is plen­ti­ful fi­nan­cial in­for­ma­tion avail­able on the banks. You can clearly see the track records of peo­ple who have taken out de­posits and loans with them: The level of in­ter­est that is paid and the num­ber of peo­ple who de­fault on loans.

To aim for a sim­i­lar level of trust with other fi­nan­cial part­ners, you’d need to an­swer ques­tions, in­clud­ing: Who are th­ese peo­ple?

Can I get com­fort from their track records?

Can I see track records of their clients? If I had to sue, could I?

Can I see au­dited fi­nan­cial state­ments of their com­pany?

Is there clar­ity about what they are be­ing paid?

Can I see what they are pay­ing for the as­sets they sell me?

Am I com­fort­able with their sales tech­niques?

Are they be­yond New Zealand reg­u­la­tion?

Or you can sus­pend your doubt, ac­cept that you want to get-richquick by ef­fec­tively con­tract­ing some­one else to do it for you and blindly hope you have put your trust in the right place. If you do, pon­der this. Years ago, re­tired farm­ers who had sold their farm in­vested through an in­vest­ment ad­viser and lost a lot of money.

They told me that back when they had owned the farm, they would never have hired a farm man­ager with as lit­tle due dili­gence as they did that ad­viser.

Wise words. Think the same of the eq­uity in your home, or the con­tents of your bank ac­count.

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