Think before trusting get rich quick schemes
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.