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Naiveté and knowledge gap makes investors vulnerable

5 March 2018

Naiveté and knowledge gap makes New Zealand investors vulnerable

In a world of technology disruption and emerging new financial providers, consumer investors are being urged to ‘at least’ brush up on legislation designed to protect them.

While Government and the FMA have moved to protect Kiwi investors since the pain caused by the Global Financial Crisis, too many New Zealanders still lack basic financial knowledge or are too trusting. As a result, too, many investors unknowingly take on risks they don’t understand.

“We have some great legislation, which over recent years has opened up some exciting new investment channels,” says CEO of New Zealand’s largest peer-to-peer mortgage lender Southern Cross Partners, Luke Jackson. “But investors often don’t know what information is available to them to assist them in deciding what channels they might choose.”

For example, Jackson says many investors do not know they can ask for the company’s ‘Custodial Report’, which is a must have under the Financial Advisers Act 2008 / Financial Markets Conduct Act 2013.

“Speaking generally, anybody who has custody of your money or property must furnish an annual custodial services report. It is an audited document that explains the procedures, controls and policies the company has in place to make sure that what the client asks for is happening, and the money is where it should be.”

While the Government has updated and written new legislation to protect consumers, and while the Financial Markets Authority is very conscientious in its role, shifts in technology are pushing more responsibility onto the investor to make their own decisions.

“In today’s environment, we have apps that make investing easier, cryptocurrencies that operate outside of the regulated environment, micro-share purchasing and various investment and lending platforms springing up all over the place – you place your money at your peril, and it comes back to investing in what you understand,” Jackson said.

“Developments in technology are empowering the consumer with information, tools and choices like never before. However, it also means they need to ensure they’re better educated before plunging headlong into these new frontiers.”

Jackson says he understands it’s a bit of a catch-22 situation for consumers.

“Investors want to explore these new tools and opportunities but find themselves in an advice vacuum. The only people legally able to provide advice – financial advisers – are often still tied into the traditional formats.

“As a result, many consumers are having to go it alone. Fortunately, the law and the FMA have in place some clear requirements for providers regarding what information must be provided – but consumers still need to know what these are,” says Jackson.

Southern Cross Partners is an FMA (Financial Markets Authority) licensed peer-to-peer lender which matches borrowers and investors together and then facilitates residential property loans supported by a registered mortgage over the borrower’s property.

The company utilises a network of mortgage advisers who help people that don’t fit typical bank lending criteria, even when they have good equity to back their loans (for example, self-employed people).

Under the Southern Cross Partners model, investors invest funds in a loan which the investor owns (together with other investors who contribute to that loan), while Southern Cross Partners manages the loans. If no investors put their hands up to invest in a loan, Southern Cross Partners will fund and retain that loan itself.

The process is completely transparent, and all the details are available on Southern Cross Partners’ website.

For more information about P2P investing (including the risks) visit or contact your investment advisor


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