Ross Asset Management - more to come
The sad saga of Ross Asset Management looks set to rumble on for some time to come. The consequences for financial advisers of the firm's collapse have yet to be fully identified, but if current exchanges in the financial media are anything to go by, the impact could be pretty significant.
Reaching hard and fast conclusions at this early stage would be premature, but it seems fairly certain that there will be some awkward questions asked by a number of parties interested in the credibility of the regulations and of the regulators.
Ross Asset Management has now gone into liquidation, and any significant recovery of funds seems remote. Questions are legitimately being asked about how David Ross was able to get this far undetected, and how the new regime was unable to prevent this happening in the first place.
Of course, the regulators will likely be asking the same questions - hopefully - but the exemptions for Accountants seems like a pretty good place to start.
Suggesting that Accountants, as part of their professional qualifications, cover the investments management subject in sufficient depth to be awarded an exemption from the standard FMA process, suggests that there is something awry with the process - or that the bar is set too low to provide proper advice for investors.
Of course, there are Chartered Accountants who have gone to the trouble of gaining the full set of exam passes , and have subscribed to the set standards. Good on them.
Furthermore, even if Mr. Ross had submitted his credentials to examination, this alone would not have avoided the subsequent disaster.
Recent references in the financial media to the U.K. system are interesting, but barely helpful.
In 1988, shortly after the enactment of the Financial Adviser legislation in Britain, an authorised firm, Barlow Clowes, ripped off investors by supposedly offering an offshore investment bond supported by government gilts and HSBC. As it turned out, there were no gilts purchased, and HSBC were not involved in guaranteeing the capital invested as was suggested. The irony of the timing of this scam - so soon after the regulatory environment was established should be carefully noted.
Messrs Barlow and Clowes knew exactly what they were doing, and set out to pay the price for defrauding investors which came in two stages;
a) the financial cost of becoming an authorised entity under the Financial Services Act - estimated at around £30,000,
b) the personal cost of taking whatever sentence was handed out by the authorities when the scam was uncovered.
As it turned the money was well spent - at least for one of the principles, as one of them died before the case came to court; the other was sentenced to community service.
The point of this sad tale is to emphasise that no amount of rules, regulations, and/or legislation will prevent criminals from pursuing their objectives. Pretty much everyone is aware that breaking into people's houses is illegal - yet there are sentences being handed out with monotonous regularity for house-breaking! Some of you may recall the fellow in the photograph here - Ivan Boesky
Put simply, white-collar criminals like Barlow and Clowes - and now David Ross - are prepared to pay the price because the potential returns are so attractive - even net of the punishment handed out by the State.
Some of you may recall the fellow in the photograph here - Ivan Boesky given 3+ years in prison for his financial shenanigans in 1986. He now lives in a sizeable mansion in La Jolla, California overlooking the Pacific Ocean - who says crime doesn't pay?
However, based on the adage that prevention is better than cure, perhaps the NZ authorities need to take a closer look at the circumstances which permitted the Ross Asset Management situation to occur and whether the focus of the regulations and the regulators needs to be adjusted to prevent further erosion of confidence in our capital and investment markets.