KEY POINTS:
Financial advisers are speaking out about Chris Lee, an adviser from the Kapiti Coast who is regularly quoted in sections of the media.
Financial planner Liz Koh, of Moneymax in Paraparaumu, says Lee has been advising elderly investors based on what she considers is his own "misleading" rating
system, grading finance companies from A to E.
Lee disputes there is anything wrong with his rating system. He told the Herald on Sunday he provided clients with a grading system to help them decipher the good finance companies from the bad ones by obtaining public information about the companies, using criteria similar to that used by credit-rating agencies.
He added that information to what he could gather "forensically".
"What he has rated as A-rated finance companies would have been a junk bond by Standard & Poor's rating," Koh says. "About two weeks before St Laurence froze its funds, he rated them as A- on his scale."
Lee has a conflict of interest, she believes, because his clients invested money in companies such as Hanover, which he rated as a B. So downgrading ratings would further expose them to risk by reducing their reinvestment rate.
Lee says his company rated Hanover as a B until he stopped rating it this year - and he has not used it for a long time.
"When we told our clients not to use Hanover, many of them continued to, either by default or because they didn't agree with us," says Lee. "If Hanover sent us brokerage we sent it to our clients, saying it was theirs."
Lee says his system has worked well for his clients.
"We've done this, in our view, very successfully. There was no other grading system available in New Zealand 10 years ago. What we felt we had to do was show people not all finance companies were equal.
"We think we've provided a good service. We will have had literally thousands of people thank us for seeing trouble in the likes of Bridgecorp and Lombard, and not encouraging them to put money in."
During the past year, Lee has been encouraging investors who lost money to take legal action against their advisers. On April 17, he listed more than 10 investment advisers he says were accepting brokerage from Bridgecorp and whose expertise he considers questionable.
Lee says he has criticised financial advisers who accepted high brokerage from dodgy companies. "They accepted it... to support companies that were rotten. That's the real story."
Other financial advisers told the Herald on Sunday Lee's comments were "scaremongering", and used to boost his business.
Adviser Craig Wiley, of Financial Fitness, says Lee has a track record of commenting to the media about the inadequacies of other financial advisers but, "most advisers, particularly those who are members of a professional association such as the Institute of Financial Advisers (IFA), are very professional and must always put their clients' interests first".
Wiley says there has never been a more important time for investors to seek professional advice, "and there are many professional financial advisers available to help them, despite what Lee claims".
Suzanne Edmond, co-ordinator at Exposing Unacceptable Financial Activities, says that it's unfortunate Lee has made public comments and expects him to come under fire from peers and investors, especially as angry Hanover investors come out of the woodwork.
"People who have spoken out like Chris Lee and Gareth Morgan haven't necessarily been wrong, but what I have to say is it hasn't been all financial advisers, it's been a portion who have been greedy and out to get their sales commission. The majority have done their due diligence."
Lawyer Brian Henry, who is working on cases where legal action has been taken against investment advisers, says investors should instead be suing "the directors who were smiling from the prospectus and saying how great everything was and were taking their money when they shouldn't have been".
But Christchurch lawyer Grant Cameron, who is working on behalf of investors taking legal action against their advisers, says one or two cases are "truly appalling".
"I think there's been no effort whatsoever to meet any of the required legal standards and certainly no attempt at moral standards.
"One can only assume commission rates might have been dominating their thinking. Either that or there was complete disregard for the interests of the client."
About 40 cases are progressing and have a reasonable prospect of resolution, says Cameron, who expects to see more cases as investors become more aware of their total losses.
David Hutton, chief executive of the IFA, says the organ- isation is dealing with about 30 to 40 formal complaints against members, which is a big increase on recent years. Some are approaching the final stages, and penalties aren't determined but three advisers have pleaded guilty, he says.
Hutton estimates 15 per cent of financial advisers throughout New Zealand are IFA members.
The steady stream of people looking to join the institute is increasing as the sector feels the heat, Hutton says.
He suspects the majority of law suits against financial advisers are not against IFA members, because they deal with about 200,000 clients per year and no more than 40 complaints came to the institute's attention.
Hutton says the institute will be interested to see how the bills advocating regulation of the finance sector are finalised.
"We are suggesting higher standards and if that comes in it will help things, but it's a shame it wasn't in there earlier."
The third call for sub-missions closes on August 22.
