KEY POINTS:
Norman Knaggs sits at the dining room table at his Howick home and talks candidly about how he signed up Blue Chip investors.
He did it just like this. The big guy - he's over 1.8m - would go to their homes, have a cup of tea and a biscuit, yarn with them, shake their hands.
He did a great job. Many people signed up for deals they now bitterly regret. Why was Knaggs so convincing? He thinks it was, at least in part, because he believed so passionately in his own sales talk. New Zealanders are too trusting, he thinks. In this, he includes himself.
Now he has the woes of his investors, some of whom may lose their homes, as a heavy burden on his broad shoulders. He also feels terrible because he not only got his own partner involved, but also her mum. He was involved himself, too, and his sister.
Knaggs doesn't hesitate in agreeing to talk openly and to have his photo taken.
"Anything I can do to help is where I'm coming from. I was suckered into the whole Blue Chip thing too."
The average Kiwi is a trusting soul, he says.
"I think we need to stay trusting, that's what makes New Zealand unique. But we need back-up. We need the Government. We need policy. You shouldn't be able to form a company, rip people off and then close your company down and go."
Many clients didn't use spare cash to invest but remortgaged homes they had already paid off, or nearly paid off, in order to reap what was never going to be a huge return.
They weren't being greedy, says Knaggs. They just wanted to make their retirement a little more comfortable.
WHAT is it with New Zealanders and property and finance investments? Given that many Blue Chip investors were around retirement age, do people in their 60s have a sudden brain implosion - and is this the reason they risk everything they have worked so hard for?
Simon Hassan says this is nonsense; that age has nothing to do with bad financial decisions.
Hassan is president of the Institute of Financial Advisers, but many who call themselves financial advisers don't join this voluntary professional body which has a code of ethics and a formal complaints procedure. Even if they'd wanted to, most Blue Chip staff would hardly have been qualified to join.
Hassan says New Zealanders are not, on the whole, very financially literate. In the past few years, tens of thousands of people have lost more than half a billion dollars in finance company failures (with investors in Lombard this week the latest to feel that sinking feeling).
For many, it is a lifetime of savings accumulated through years of careful budgeting and going without which has gone down the drain.
"I think all human beings have a natural tendency to make mistakes about investments," says Hassan.
The impact of human psychology on financial decisions is well-studied. There is a term for it these days - "behavioural finance" - and it's taught in universities around the world.
Hassan explains that people have biases built into their thinking and one of those biases is optimism.
"Human beings tend to be more optimistic than they should be when it comes to investment decisions."
We tend to respond too much to the emotions of fear and greed, he says. "And so when an offer sounds like it's really good, we're tempted to take it without necessarily assessing all the risks."
The Blue Chip situation did not seem to include a pattern of people going to certified financial advisers who charge a fee and base their recommendations on research. Instead, many decisions were based on a fairly high-pressure sales pitch.
"The people who were on the other end of the pitch were quite often financially naive and so, probably, were the people making the pitch. To be honest, I doubt if they were very [financially] sophisticated."
But Hassan also says that while financial literacy levels are poor in New Zealand, we are probably not that much different to Australians. There are plenty of examples across the Tasman where people have made bad financial decisions.
"It comes back to that same old 'if it seems too good to be true, if it sounds like this is a winner', then there is something about the investment you don't understand, because there's no such thing as a free lunch or an investment return that's better than average for no appreciable risk."
He believes new financial adviser regulations going through Parliament will help the situation but they won't stop people from making bad decisions.
"Just like a swimming pool fence, that won't stop anyone from jumping in and drowning themselves."
Suzanne Edmonds, of lobby group EUFA (Exposing Unacceptable Financial Activities), says some of the older investors weren't being silly, or even naive. They simply come from a kinder era, where doors were left unlocked and deals settled with a handshake.
They were often churchgoers who learned to trust other people and not to see the bad in people. Calling them stupid is insulting, she says.
"These people were conned, let's get real about it."
Knaggs says he used to be a prison guard then went into real estate. He never classed himself as a financial adviser but knew a fair bit about mortgages and property.
He answered an internet advertisement by Blue Chip calling for "consultants". They had to have a bit of knowledge about the industry but he says ultimately he was a salesman.
A telemarketing team would cold-call people and anyone who wanted to know more about Blue Chip would get a visit from a consultant like Knaggs.
He reckons he was just talking to people who were already interested in property investment - his job was to convince them to do it the Blue Chip way.
SIMON HASSAN'S GOLDEN RULES
1 Get independent advice on any investment decision you make from someone qualified to give it.
2 Get everything in writing. When things go wrong you're virtually without a defence if you don't have written proof of promises made.
3 Understand there are risks in all investments - if you haven't found one yet that just means you haven't looked hard enough.
4 Diversify - this is always the golden rule. Don't have all your money in one type of investment, or even in one country.
5 If it sounds too good to be true it probably is - an old saying but a good one.
6 Don't think it's a good idea to remortgage your home to finance a brilliant-sounding deal - the general rule is pay off the mortgage before you even think about investing anywhere else.
