Pensioners hold advisor 'accountable' for bad advice

An interesting story regarding the back-lash some advisers are experiencing due to the GFC. I'm glad the advisor escaped with just a few broken ribs, but I think the 'furious five' old-age pensioners who kidnapped and tortured their financial advisor for losing their savings by investing in a failed Florida property scheme will probably end up with the short end of the stick. Apart from still being out of pocket $4.1 million, the five pensioners are now facing up to 15 years jail time for hostage taking and torture.

I wonder if the advisor invested (and lost) any of his own money in the dodgy Florida property scheme, or if he just made money (via fees) by getting his German "clients" (marks) to "invest". It would be interesting to know the details regarding his actions - was he licenced to give financial advice, what advice did he give the pensioners regarding this investment (risk, returns etc.), and was the advice he gave "suitable" for his clients given their age, risk-tolerance, need for diversification, understanding of the investment. It appears to be another example of how high fees paid to advisers by risky investment schemes can lead to massive conflicts of interest and unsuitable advice being provided to clients.

Subscribe to Enough Wealth. Copyright 2006-2009

CDF wind-up payment arrived

As announced last month, the wind-up of the Commonwealth Diversified Share Fund (CDF) was completed yesterday, with payment of $1.0387 per share made to all remaining shareholders. I'm glad that I borrowed some money to meet the margin call that resulted from Comsec Margin Lending reducing the margin value of this share to 0% on 17 May, otherwise I would have only received around $0.96 per share selling the shares on-market during late May.

By maintaining my shareholding until the termination date (1 June) and getting paid out the full NAV on 18 June, I received an extra 8% or so - around $5,136 - compared with having the shares sold out by Comsec in late May to meet the margin call.

Some smart operators made a killing by buying up CDF shares in late May. For example, Weiss Capital made around $200,000 by buying CDF shares for around $0.96 in the last two weeks of May and receiving $1.0387 per share yesterday. 8% ROI in one month with minimal risk is a pretty canny investment. If I'd had spare cash I would have bought some CDF shares as well.

I am less impressed that CBA also became a substantial shareholder during late May. Their share transactions notification shows a lot of buying and selling by Value Nominees (ie. Comsec Margin Lending) which I suspect was mostly due to Comsec cutting the Margin Lending Value of CDF shares from 70% to 0% on 17 May. However, CBA ended up with a net increase in CDF shares of around 2.5m shares, which also gave them a nice profit when the fund was wound up. Perhaps I should ask ASIC to look into the behaviour of CBA Bank, Comsec and CDF Fund regarding possible conflict of interest issues regarding these related parties and their clients/shareholders?

Subscribe to Enough Wealth. Copyright 2006-2008

No pay rise this year

My company goes through it's annual performance review/pay rise process every June - putting new pay rates in place for the new financial year starting 1 July. This year the boss sent out an email to all staff saying that although the company was weathering the GFC pretty well and didn't need to lay off any staff, it was facing uncertain times and had to keep a close eye on costs until at least the end of this calendar year. So there would be no "across the board" cost-of-living pay rise, and all managers were instructed that there would be no promotions just to move people to a higher pay grade.

I'm not fussed about the lack of a pay increase this year, as the tax cuts coming into effect on July 1 will boost my take home pay slightly, and the cuts in mortgage interest rates over the past year have reduced our non-discretionary expenses considerably.

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ANZ SPP - a windfall?

DS1 and I both received the paperwork for the ANZ Bank's Share Purchase Plan. The maximum application amount is $15,000 and the share price is a maximum of $14.40 per share (it's unlikely to be less than this as the current share price is 20% above that level). I have around $20,000 worth of ANZ in my leveraged equities portfolio and will use the cash realised by the wind-up of the Commonwealth Diversified Fund (CDF) to apply for the maximum amount. If there isn't any scale-back, and the share price remains close to it's current level, that will produce an immediate windfall profit of $3,000.

DS1 is likely to do even better from this SPP. He currently has $4,750 worth of ANZ shares, and has $1,000 spare cash sitting in his St George Happy Dragon account (earned from busking) that he wants to use to buy some more ANZ shares via the SPP. I think I'll lend him another $14,000 as a short-term loan so he can also apply for the maximum allotment. If he's lucky and gets the full $15,000 worth of ANZ SPP shares issued at $14.40 he can sell enough surplus shares to repay my $14,000 loan a few weeks later. Depending on how the price moves between now and when the SPP shares are sold, he may end up with an extra $3,000 of 'free' ANZ shares in his portfolio.

I'll borrow the $14,000 to lend DS1 from my St George Portfolio loan account (5.10% current interest rate).

Subscribe to Enough Wealth. Copyright 2006-2008

Using CFDs to add gearing to our SMSF fund

So far we have invested our SMSF in the Vanguard Highgrowth fund, whose asset allocation is mostly the Australian and International share markets. Despite the recent poor performance of stock markets around the world, I'm still of the opinion that, in the medium- to long-term, this asset allocation is most likely to provide the best return for the amount of risk we are comfortable with. In fact, given that the Australian stock market appears to have possibly bottomed out in March, we have opened a CFD trading account with Commsec for our SMSF. I intend to buy a single ASX-200 index CFD (IQ) to add a modest amount (around 10%) leverage to our SMSF stock market investment. The margin on the index CFDs is 10% and each IQ CFD has a contract value of 10x the index. So, if the index is 4,000 the CFD contract value will be $40,000 and the initial margin required to buy 1 IQ CFD will be $4,000. Basically, the cost of the IQ CFD is the index value expressed in AUD, and every point movement in the index corresponds to a $10 gain or loss. So, if the ASX-200 index goes up 5% you will make 50% profit on your initial CFD purchase, and if it drops 5% you would lose 50% of the amount invested. We have transferred $5,000 from our SMSF bank account into the CFD trading account, and will buy one IQ CFD. The extra $1,000 would only be enough to cover margin calls if the index drops less than 2.5% from the level at which we buy in, so we'll have to keep a few thousand dollars in the SMSF cash account to cover potential margin calls.

When I initially applied to open an ASX CFD trading account, the index had climbed from below 3,500 to around 3,800. Unfortunately the first lot of paperwork from eSuperfund (our SMSF administrator) was incorrectly filled in for Comsec share CFD trading, not the ASX CFDs (which include index CFDs). In the few weeks it has taken for the correct paperwork to be completed and processed the market has risen to 4,070. It would have been nice to have bought the IQ CFD at 3,800 as we would now be sitting on a $2,700 unrealised profit to act as a buffer in case the market pulls back. As it is, I'm hoping we get an opportunity to buy in when the market has another bad day.

The brokerage costs for trading ASX index CFDs appear to be relatively modest, and the holding costs appear to be around 1.5% pa above the overnight cash rate. I'll find out exactly what the total cost is after we've bought a CFD and held the position open for a year.

Subscribe to Enough Wealth. Copyright 2006-2008

Coles Gift Card promotion

I received an email today telling me that I had accrued $3.51 as at the end of May. Provided my total exceeds $5.00 by the time the promotion ends on 31 July, I'll be sent a Coles gift-card for the amount accrued. When you spend over $30 in one transaction you receive 1c credit per dollar spent. There are also some 'Boost' products advertised around the store where you earn an extra $1 credit for buying them. I did buy one such product a few weeks ago, but I can't tell if I received the $1 bonus as the monthly gift card statement doesn't provide details of the individual transactions that accrued credits. It's a pity that this promotion ends next month - after that happens the QFF points available with the Woolworths loyalty program will entice me compared to the standard FlyBuys points available at Coles.

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Neighbour dispute starting to cost real money

As I previously posted my next-door neighbour wants to add a couple of feet of new retaining wall to the existing brick retaining wall, demolish, realign (our respective property identification surveys disagree on which side of the brick wall the boundary is), and replace the existing wood boundary fence (which has started to rot due to the earth he piled against it soon after he moved in). Initially he tried to sell me that this work would be an improvement that would "add value" to my property, and that he was only asking for half the cost of the new boundary fence - he would generously pay for the cost of increasing the height of the existing retaining wall.

Since I didn't agree with my neighbour's "generous" proposal (and in fact complained to council about his intended works, and told him to send future correspondence on this matter via my solicitor), he has now officially demanded payment for half the total cost of his intended building works along the boundary (around $4,500). It looks like this will end up going to the Land and Environment court, so today I had to give my solicitor the go-ahead to spend around $2,000 getting the boundary properly pegged by a surveyor and to get a report from a geotechnical expert on the current situation and what drainage problems my neighbour has already caused by his previous "landscaping" efforts. The black line on the picture below shows how high the earth has been piled against my neighbour's side of our boundary fence!



My solicitor is also going to send me a costs agreement, as his bill will most likely exceed $1,000 if this matter does proceed to court...

On a purely economic cost:benefit basis it may end up that I would have been better off just letting my neighbour do whatever he wanted - but I want to defend my rights and the amenity of my backyard, even if it costs me a several thousand dollars.

Subscribe to Enough Wealth. Copyright 2006-2008

Free Qantas Frequent Flyer membership

My wife got a free membership of the Qantas Frequent Flyer years ago when a program of another airline closed down in Australia. I never bothered joining QFF as the annual fee made membership a dubious benefit. However, the Woolworths EveryDayRewards program recently linked up with QFF and in future spending more than $30 in a single Woolworths transaction will earn you QFF points if your EveryDayRewards account is linked to a QFF account. What I just found out today is that EveryDayRewards members who don't already have a QFF account can join QFF for free via the Woolworths website (usual cost is around $90). I had a read through the QFF terms and conditions and I couldn't see anything about an annual fee in the Fees section, so maybe this QFF membership will be free for life, like my wife's membership. In any case, if there is a fee after the first year I can always cancel the QFF membership, so I joined up today. Fortunately QFF points don't expire, as it will take around five years for me to earn enough QFF points for a basic round trip fare to Auckland or Perth from Sydney, if I only earn QFF points from my grocery shopping at Woolworths! Still, the points appear to be in addition to the normal 4c/L fuel discount you get for each Woolworths transaction over $30, so it's an extra benefit at no cost. (Well, yes, the true cost will be hidden in the overall grocery pricing structure of Woolworths. But since the prices apply equally to shoppers who don't join the EveryDayRewards program or QFF, and also to transactions below $30 which aren't entitled to points, the benefit for members transactions over $30 should be greater than the resulting price hike - all other things being equal).

Anyhow, it gives me another rewards points balance to keep track of ;)

Subscribe to Enough Wealth. Copyright 2006-2008

Net Worth Update: May 2009

My net worth as at 31 May had decreased fractionally (down $507, or -0.08% for the month) to $643,673. My retirement account gained $7,732 (+3.00 %) to $265,071, but this was mostly offset by a drop in the estimated valuations of my half of our real estate assets (house and investment property - down $7,070 (-0.92%) to $757,837). But the preliminary sales figures indicate that this loss may have been reversed in June.

My leveraged stock portfolio ended slightly down for the month, -$1,792 to have a net value of -$16,158, but the market has risen enough in the past couple of days to bring that back into positive territory.

Subscribe to Enough Wealth. Copyright 2006-2009