9 July 13

How to become poorer – quickly

A recently updated report published by MONEYSMART, ASIC’s consumer website, tells the unfortunate story of a would-be investor who paid $10,000 to attend an “investment” seminar.

The invitation had promised that the seminar would provide the secret to making a remarkable monthly return of 30%.
While astute and informed investors would regard such a return as far too good to be true, this would-be investor considered the assurance of a 30% as “too good to turn down”.

Today, this would-be investor is $10,000 poorer, hasn’t made any money from her investments and considers the tips from the self-proclaimed financial experts to be motivational, not practical.

ASIC warns that signs that a wealth-creation seminar could be dubious include:

  • Unlicensed speakers. For in-stance, ASIC found that none of the four speakers at a wealth seminar held an Australian Financial Services licence.
  • Unrealistic claims for investment success. Promises of above-normal returns would tend to suggest that something is not right. ASIC suggests getting an opinion from an adviser who is not connected with the seminar and asking for a detailed written explanation to support claimed returns.
  • High fees. Sometimes, the first seminar is free to entice attendees to pay heavily to attend other seminars or courses. And some seminars are pushing such investments as off-the-plan property with finance pack-aged in the deal. ASIC warns consumers to watch out for hid-den commissions and to be aware of the risks of using your home as security for a loan

Get-rich-quick seminars – often built around the property market – perhaps should be relabelled “get-poor-quick seminars”. And anyone tempted by an invitation to attend should act with caution, extreme caution.

Sadly, many vulnerable people are always looking for ways to quickly get rich or to at least to quickly become financially secure. However, as quality financial planners would say, the smart way to move towards financial security is to invest regularly over a long time in a suitably diversified in-vestment portfolio.

Behavioural economists tell us that one of the biggest challenges for investors is to overcome the temptation of allowing emotions to drive investment decisions. Yet these wealth seminars typically thrive on whipping up the emotions of their audiences.

Written by Robin Bowerman, Principal, Market Strategy and Communications at Vanguard Australia.