KEY POINTS:
Elderly investors watching billions of dollars leak from their retirement nest want answers from the Government, their financial advisers and the directors of the troubled finance companies they invested in.
Financial planner Liz Koh estimates up to $6 billion in investor funds are now frozen in finance companies and mortgage trusts - the equivalent of the failure of a major bank.
"That's a hang of a lot of money. Financial advisers can't sort out that sort of thing overnight."
Koh has seen retirees, particularly on the Kapiti Coast, who were advised to invest in the frozen or failed funds and who are now looking to sell their homes to create some liquidity.
One or two invested all their money in two finance companies and lost it all when they collapsed.
And she expects there's a lot of pain not being talked about as the older generation is not used to sharing details of their financial situation.
"For retired people when it's their entire nest egg, it's devastating."
Koh says many elderly investors trusted local financial advisers with no qualifications and a questionable rating system.
"It's a combination of things. Some people have invested their money without advice. Some, because of advertising and ignorance, have put all their money with one company.
"In other cases they have been to advisers who have advised them inappropriately - who haven't followed good practice like spreading your money around different sectors."
Market regulators have also contributed to the losses among elderly investors, as despite unfettered growth in the finance sector, steps were not taken to protect people, she says.
Two bills making their way through parliament will impose regulations on finance companies and declare minimum qualification requirements for financial advisers, but Koh says they should have been introduced 10 years ago.
"You've got to be asking them why it's taken them so long - why they are reacting rather than acting to pre-empt it."
Philip Macalister of goodreturns.co.nz sympathises with those who have lost money, but he says the spreading of fear in the sector is "out of control".
He says financial loss is part and parcel of dabbling in a risky market and there was plenty of information available for people investing in the finance and mortgage trust sector - the only problem was not enough people accessed it.
"You can't go off a nice, big advertisement in a newspaper, but that's what people have done, and they need to take some responsibility themselves," says Macalister.
"I think some of these organisations running around saying the Government should help investors are ludicrous. This is the market, people need to understand what they are doing."
Macalister says finance companies play an important role in the economy and "we just seem to have forgotten that". The sector is "miles" away from collapsing - those with diversified books are doing well.
Collapses in the sector have cleared the market of "dodgier" companies, but Macalister says the tragedy is some of the good businesses have been hit by plummeting investor confidence, rather than exposure to the property sector or running a bad business model.
"When you see names like AXA and Guardian Trust having to suspend redemptions because people are panicking, that's a sure sign people have got into a really silly stage.
"It's panic rather than a sensible investment decision and I think that's a real shame."
Macalister says there will always be a need for finance in the property sector and he believes that the finance sector will emerge stronger in the next few years.
"A lot of people have been hurt big time by it and they get my sympathy, but gosh, there are a lot of lessons to be learned."
Macalister hopes investors have learned the value of liquidity and to spread their money around - balancing high-risk investments with lower-risk ones, such as Government bonds or bank term deposits.
"But markets go through cycles - we've seen it all before, we come out the other side a little bit wiser and sometimes a little bit poorer, but we do come through it and we survive," he says.
CASE STUDY
A retired investor from the Kapiti Coast and his wife stand to lose up to $160,000 from investments in failed and frozen funds.
Many of his friends are in a similar situation - although they don't readily discuss it.
A few months ago a neighbour was told he would be lucky to receive half his investment back - now it looks more like 25 per cent.
This investor, who did not want to be named, says he and the people around him are "shaking" as they watch chunks of their income collapse with the finance companies.
"I didn't have a great deal for my retirement - one always plans to - and I made some assumptions, which were incorrect, that I would be secure," he says. "As it is, if I lose this money I am going to have just poor-performing assets left and I'm going to be seriously affected."
While the couple's home should be secure, the investor's wife is lined up for two major operations and may have to go through a private hospital.
"If I have to pay for it I will be selling everything at a very serious loss, provided I can sell at all," he says.
The retiree renewed his investments within the past six months and says he believed company trustees were acting in his best interests.
He also trusted the adviser who said he was making direct representations to the companies and looking at their books.
"As it's turned out, he doesn't know much more than me."
He wants the Government to regulate the market, investigate the role of trustees and provide investors with an intermediary other than the courts.
"People have lost faith [in the finance sector]," he says. "As each collapse occurs people become more convinced it should be avoided, and then they can't get their money."
FINANCIAL LITERACY - THE WAY FORWARD
The Retirement Commissioner, Diana Crossan, says it's hard to put a figure on the amount of financial loss among retirees, but they have been hit hardest by the collapse of the finance sector.
"There have been calls to the Government to step in and give money to individuals to help them through this - but that's very hard to do."
Crossan says it will be difficult for people who have lost money to accept a change in their lifestyle.
Some who had planned to go into a retirement village will have to put their plans on hold, some looking to retire will have to stay in the workforce for a few more years, and some may be forced to look at other ways of making money.
Crossan says the impact of the collapsing finance sector has highlighted the importance of improving financial literacy.
"Some people knew the risk, but very few of them did," she says. "Many did not have the financial education or knowledge needed to make those decisions - they saw an advert in the newspaper and made the investment based on that."
Crossan says the Retirement Commission has been working on a financial literacy programme since 2004.
In response to suggestions that this will come too late for the investors who have lost money, she says: "It's not only in the bad times that you need financial education but also in the good times."
The extent of financial pain caused by collapsing funds will lead to greater regulations for banks and other lenders, and this will prevent similar future collapses.
But those who have lost their investments already should seek budget advice and avoid debt at all cost.
"Elderly [people] are lucky to be eligible for the New Zealand Superannuation Fund, which will ensure that they have an income for the rest of their lives," Crossan says.
