Blog: The Landlord says...

If ever there was a group of “advisers” who needed regulating then it’s the ones who sell all this Blue Chip stuff, or what we call packaged property investments.

NZ Property Investor Magazine has been examining the collapse of Blue Chip. What is amazing is that “investors” bought nearly half a billion dollars worth of property through Blue Chip in a year.

If you think about all the other crowds who are selling this stuff then the sector is a significant player in New Zealand’s investment markets.

Although people are being sold this stuff as an investment and “for their retirement” it falls outside of the securities laws.

This is absolutely ridiculous.

New disclosure laws that came in on February 29 don’t have any impact as the people selling this stuff aren’t investment advisers.

According to the Securities Commission an “investment adviser is a person who gives investment advice about securities.”

All this packaged property stuff isn’t a “security”.

My discussions with the Securities Commission indicate they don’t have any jurisdiction over this, rather it falls to the Commerce Commission under the ambit of Fair Trading Laws.

I can’t see this being particularly useful.

The next bit of adviser regulation is the bill currently before Parliament that “licenses” advisers and makes them all join an Approved Professional Body, who then regulates them. Again, it appears that these rules won’t capture people selling – I wouldn’t call it advising – on packaged property.

Commerce Minister Lianne Dalziel says she has an open mind to changes to the rules, but it is also understood any changes have to be careful and not capture ordinary real estate transactions.

That’s fair enough, but it can’t be to difficult to develop some rules which capture sellers of packaged property.

A question I have been pondering is whether schemes like what Blue Chip offered investors have a place in the market.

No doubt many of you will say no way. They are just big rip off schemes where the promoters clip the ticket the whole way through.

However, I suspect there is a place for them, as long as they are well-run. But there’s the rub. How do you tell if it is well run? And what are the rules around these things?

On the latter it would seem there are very few rules; certainly less than around other sorts of investments offered to the public. That in itself is a concern and something the government should be looking at in terms of its current reform of the financial adviser market.

With regards to the former question the answer isn’t particularly clear right now, other than to say the Blue Chip clearly wasn’t well run. I would be interested in your thoughts on this. (Email me here).

Stepping back a little it appears that there are some similarities between Blue Chip and finance companies which have failed.

One of the issues with finance companies is that in many cases businesses relied on new money coming in to help fund investments when they matured. When the inflow dries up a cashflow issue develops.

It seems with Blue Chip there may have been a similar situation.

Secondly we have seen “contagion” in the finance company sector where bad news with one company impacts on investor confidence in the sector and other companies. Blue Chip maybe to this sector what Bridgecorp was to finance companies?