Rat bags and your money

Rat bags and your money

Ponzi schemes such as the recent Ross Asset Management fiasco and the world-renowned Madoff scheme are not something new. They have existed since money and methods of exchange were invented.

It’s people not money that is the problem. There will always be dishonest or desperate people in this world that can convince investors that they have the ‘magic touch’ and can obtain investment returns higher than the market average. The real shame is that through the centuries, people have consistently parted with and lost their money due to greed and a desire to maximise returns. If something continues long enough, then people grow to believe that it must be safe and the risks low. However, the age old adage of “the higher the return, the higher the risk” normally ends up being true.

Despite us living in a high-technology and information-rich society, people continue to make the same mistakes and chase the illusory easy win or quick return. Sure, the sophisticated traders can make quick money but often at huge cost and often at the expense of paying capital gains tax on their profits. We still see people today getting caught up in the cyclical property bubble hoping to make a 10% gain in house value, or investing into some finance company or bond that is BBB - or lower - rated, thinking it is a low risk investment. At Milestone, we believe in the ‘slow and steady’ approach, where the return of your capital over time is more important than the ‘return on your capital’. Our objective is to get you better returns than placing your money in the bank but we don’t want to do that at the risk of it being lost. Everything needs to be a trade-off and a compromise.

The Ross Asset Management fiasco will have some wide ranging ramifications for the financial services industry as the regulator and industry participants try to figure out how this company managed to survive for so long and how we prevent it happening again.

We have compiled a simple checklist that you can use when assessing if your money is safe.

Investment safety check

  • If your money is in a managed fund, is it with a tried and proven fund manager who has a reputable trustee company looking over its shoulder and a reputable auditor who reviews transactions and accounts on a regular basis?
  • If your money is in a diversified portfolio, does it sit on an investment platform operated by a reputable company and have a separate custodian who holds the money on your behalf? Is that platform subject to external audit by a reputable auditor?
  • Is your financial adviser an Authorised Financial Adviser (if providing personalised investment advice)? Does your adviser provide you with the necessary Primary and Secondary Disclosure Statements, and do they advise you of their external dispute resolution service?
  • Is your financial adviser externally reviewed or audited by a reputable third party at least annually?
  • Are you invested into products where the value is calculated daily/weekly or monthly and can be viewed publically?
  • Is the return you are receiving well above that of your friends and seem too good to be true?
  • Are you able to withdraw your money if you want to?

Ponzi schemes, rat bags and other shonky investments will always be around but if you follow common sense, don’t let greed take over and refer to the above investment safety check, then you are likely to be in safe hands. Contact your Milestone adviser if you wish to discuss the Ross Asset Management fiasco and how it does not apply to your investments with Milestone.

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