For savers, collapse was the hardest lesson

Margaret Ufton says she is a good saver who wanted to build her nest egg. Photo / Tim Cuff

Margaret Ufton says the last 18 months have been the worst in her life.

The 62-year-old hospice nurse has had to sell her Nelson home to meet the mortgage payments on an Auckland apartment she bought through failed Blue Chip property investment scheme.

Ufton is just one of the thousands of investors who have lost money in the more than $6 billion collapse of the finance and investment industry.

Instead of looking forward to her retirement in three years, she is working longer hours to keep afloat and expecting to work until she is 70.

The retirement nest egg she hoped to have accumulated by now has been replaced with a mountain of debt after investments in Blue Chip, Bridgecorp, North South Finance and the ING Diversified Yield Fund turned into disasters.

"I wanted to be independent in my retirement," Ufton says. "The best I can hope for [now] is a small, modest home and New Zealand super."

Ufton describes herself as a careful saver. She was a maths teacher in England before emigrating to New Zealand.

She tutored in maths in Auckland before moving to Hamilton and then Nelson. "I have never earned that much but I have been a good saver."

After years of saving Ufton decided to try out a rental property investment with some friends.

But the property market took a turn for the worse and she started to lose money. She sold up.

Seven years ago she took the money from that sale to a financial adviser seeking help on investments outside of property.

"When I moved to Hamilton I thought I would go to a financial adviser - because of the experience I had, I wanted low-to-moderate-risk things."

Ufton found the financial adviser because he advertised in her local church newsletter.

His name was John Heritage. "He did seem very genuine - I checked out his credentials - he was a member of an association for financial advisers."

She initially had about $70,000 to invest.

Some of the money came from the rental property sale.

She then began saving about $10,000 a year to put towards her retirement.

"My plan had been to head towards $300,000."

Ufton says Heritage was very keen on finance companies. She admits she knew nothing about them.

The adviser split her money, investing some with Bridgecorp, Provincial Finance, Lombard, Dominion Finance subsidiary North South Finance, ING and Blue Chip. Some of her money was also invested in a capital-protected product by Liontamer. All went well for a while.

Then in June 2006 Provincial Finance fell over. Ufton says she forgave her adviser for making one bad investment.

Next to crumble was Bridgecorp, which collapsed in July 2007. She had $30,000 invested and was initially hopeful of getting some money back through the receivership.

But it was the collapse of Blue Chip that sent her reeling.

"That was the worst thing for me."

She had invested in an apartment block in Auckland called Tetra House. "I was mortgage free but with that I took on a mortgage of $360,000."

The apartment was valued at $340,000 at the time and around $20,000 was added to the mortgage for a furniture package.

Since Blue Chip's collapse she has discovered the apartment was probably overvalued by $100,000 and with the decline of the apartment market is now worth just $160,000.

She is still hopeful of getting some money from her other investments.

North South Finance, which is part of the Dominion Finance Group, is in moratorium.

ING has made a settlement offer to pay 60c a unit, which means Ufton will make a loss of around 40 per cent on her $50,000 investment.

She says she has no choice but to accept the offer although it will mean she has to waive any right to potential compensation from legal action.

"I have to - I can't risk not."

Ufton is particularly frustrated with the ING situation as she had applied to withdraw her money and they froze the funds just two days after she would have received it back.

"I felt very angry. I wrote to [ING chief executive] Helen Troup twice."

But any money she does get back will have to be used to pay down the mortgage on the Blue Chip apartment.

Ufton says she swings from being furious with her financial adviser to just accepting fate. She has had conversations with him and emails but says all he will say is he did his best.

She has taken advice about taking legal action against him but says she just can't afford the $30,000 bill that would be needed to take a case.

"I just have to get on with life."

Heritage says Ufton's situation is "particularly unfortunate" but believes he has done nothing wrong.

"She has just been desperately unlucky."

Heritage, a Brit who came to New Zealand seven years ago, is a lawyer who specialised in wills and trust law in the UK.

He gave investment advice there and has an advanced financial planning certificate as well as being qualified as a certified financial planner.

While he has no New Zealand qualifications Heritage says his British qualifications are designed to be globally accepted and he has 26 years of experience. He has been a member of the Professional Advisers Association (PAA), an association which mainly has an insurance-based membership, for five years.

Heritage says his business is split between insurance and investment advice.

When looking for investments Heritage says he often looks for products with capital guarantees as well as those with a good track record. He uses rating company Fundsource for research on investments.

"I did put a fair amount of people's money into finance companies."

He says that decision was driven by the returns rather than any incentive for himself. "I was never once offered a commission incentive." He is paid by commission by 99 per cent of his clients.

But he doesn't believe he took undue risks with investors' money.

"My primary concern has always been what is best for clients."

As for Blue Chip, he got involved as an investor and then became an adviser for around 12 to 18 months before its collapse.

"I thought it was a good investment otherwise I wouldn't have done it myself. I thought if it was good for me it would be good for my clients too, as part of an overall portfolio. I saw it as a tax-efficient way of owning property."

He says Blue Chip advising was only a very small part of his business. He recommended it to five of his clients and only two lost money on it.

Heritage says Ufton is the only client who has left him as a result of the collapses although others have withdrawn their investments.

"I believe I gave her advice that I considered to be appropriate at the time based on the information available to me. If that [information] has now turned out to be lies I don't consider I can be held at fault for that."

It's a sentiment that is echoed by PAA president Peter Leitch. Leitch believes advisers should not be held responsible for recommending investments where the company or product itself has failed, such as Bridgecorp, Blue Chip and ING.

"I think they feel that they have genuinely tried to assist clients. In hindsight the strategy that was implemented has not been good but it has been such a unique market - we have got products across the board that have failed."

While investors have been burned, advisers have also suffered in terms of loss of business and confidence, he says.

Leitch says the fallout from the fiance company collapses and the pending regulatory changes have already prompted some advisers to cut back to their core areas of expertise.

"A number of our advisers who don't have the confidence to give investment advice have stopped offering it."

He believes many had added investment advice to their businesses over time without considering whether they were qualified to.

"Because there has never been a requirement to stop and think about what they are qualified to give advice on. Those people have stopped and thought 'crikey' now."

He says at least investors who go to an adviser who is part of a body can go through a complaints process.

The PAA has an ethics code and a complaints process which allows for advisers to be publicly censured and fined up to $5000.

But it was only introduced in 2007, once the collapses had begun.

Legislation is being introduced to ensure advisers are qualified and investors have a place to go to make a complaint through an independent body without having to take legal action.

In April, the Securities Commission released a paper on financial adviser competence as the first step towards producing a code for the industry designed to standardise the qualifications held by advisers and give greater confidence to consumers.

Since then a commissioner of financial advisers has been appointed and positions on the code committee have been advertised.

In the past week, consultation documents on which organisations can be an approved disputes body and what the punishments for advisers found to be in the wrong should be have also been released.

The regulations are expected to be in place by the end of next year after more than eight years of consultation between the Government and the industry.

But Ufton says it will be too late for her and others in her position.

"It's all fine for people in the future but it's too late for people it has already happened to. For all of us who have lost money it feels like we have been left high and dry."

The only way they can fight back is the legal way and that, she says, is financially prohibitive when you have already lost so much.

Ufton says the collapse of wealth in her generation and those who have already retired will not just affect the individuals involved.

"It's not just the people who have been involved in it. My generation have put the money in."

But the destruction of wealth will be borne by future generations as well.

"Unfortunately the rest of society will have to support us more. It's going to have an impact on society for a long while."

Retirement Commissioner Diana Crossan says it seems the adviser did not really understand Ufton's risk appetite that well and that Ufton herself did not understand what she was being offered.

Crossan says the situation adds more weight to the need for a formal disputes process. "It's a really important back-stop."

But for many people who had lost money the only option was to keep working for longer.

Margaret Ufton's troubled investments:

Blue Chip apartment - she took out a $360,000 mortgage but it's worth $160,000 now.

Bridgecorp - invested $30,000, receivers expect to pay out 10c in the dollar.

ING Diversified Yield Fund - invested $50,000, ING is offering to pay 60c a unit.

North South Finance - in moratorium.

Provincial Finance - 92 per cent of the money has been paid back over three years.