What a terrible Christmas it is going to be for those who have lost huge amounts of money in the collapse of 13 finance companies.Hundreds of millions of dollars have gone down the gurgler – and at this stage at least – that’s due to poorly run finance companies – irresponsible advisors who have directed funds to them and individuals who have failed to seek advise from suitably experienced professionals.
Clearly these finance companies have been poorly run. What should happen in a credit squeeze, if a finance company’s books are properly balanced, is that the finance company would simply get smaller. Loans would mature and be repaid to the company – the company would repay debentures to investors – and if further investments were not forthcoming then the company would end up with a smaller book.
Those that have failed here, either had a geared book or, have been inefficient lenders – or both.
Clearly many financial intermediaries are guilty of greed – of putting their interests ahead of their investors. Why did the likes of Bridgecorp receive such huge support from financial planners – especially late in the piece, when the whole industry knew they were in trouble. The only answer – the only answer is that Bridgecorp were paying brokerage at a level about double the industry average. Wouldn’t that tell you something.
Why are some financial planning firms significantly exposed to the likes of Bridgecorp- Provincial – Capital & Merchant and yet firms such as my own – Somerset Smith Partners – has never placed one cent in any one of the 13 finance companies that have collapsed.
Clearly some firms do their homework and work in their client’s best interests – some are more mercenary.
And finally there are those individuals who have been sucked in by the fancy advertising campaigns, and have managed to make a mess of things all on their own.
Why have these people not sought advice from reputable professionals. It costs them nothing – brokerage is paid by the company – why have they simply blazed on, on their own?
There are still some very good soundly run finance companies out there – good advisors know which ones they are.
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