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.

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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.

Subscribe to Enough Wealth. Copyright 2006-2008

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