I still shake my head with incredulity whenever I think of the complete rout the finance company sector suffered and the financial pain that has caused to former customers.
The fallout is still happening and it's not all history yet. The Securities Commission is copping criticism for failing to act before the collapses. As one poster to a blog wrote : "A regulator that doesn't regulate? Except to belatedly bring charges after criminal activity is established? “Useful as, tits, bull”…….Oh, and blame the auditors!"
Likewise the group Exposing Unacceptable Financial Activities (EUFA) has dug up two Reserve Bank of New Zealand documents dating back to 2005 where the bank warned the government about the risk of finance companies, but those warnings weren't passed onto consumers.
I guess very few people really took the risk seriously – even though the finance company sector had fallen over once before in the late 1980s. I remember a financial adviser who I interview regularly telling me over and over again in 2005/6 that not just one or two, but virtually all of the finance companies were heading for collapse.
I found the RaboPlus Financial Confidence Index (launched earlier this week) a very interesting read and it can be found here. I was amazed at given our recent history where nearly every finance company in the country has collapsed you'd think that investors would be all running a mile.
Not so it appears. According to the index confidence 16% of the sample said they felt confident their money would be safe with a finance company. Also customers of finance companies had a confidence score of -6 compared to -30 for non customers.
Psychologically we have a bias to defend the decisions we make no matter how foolhardy. So in part current investors in finance companies probably think or tell others they're in the "safe one". That's a risky attitude to have and defend.
New finance companies will spring up. They're already beginning to. The NZ Herald reported recently that the son of the National Finance founder had started a new finance company. The father is barred from owning a business, so put two and two together yourself.
What simply astounded me about the index was how lowly stock brokers and their products are held in the esteem of the public. Stock brokers have to adhere to quite strict rules and they don't benefit directly from the success or otherwise of the companies their clients are investing in – getting a standard one-off brokerage fee instead.
That's remarkably independent compared to financial advisers who may get up front commission and an on-going percentage of your portfolio each year. It shows me the pitiful level of our financial literacy in this country.
And it never ceases to amaze me how the public thought, hopefully in the past now, that finance companies were safer than publicly listed companies.