Last month ABC's 4 Corners ran a story exposing managed investment schemes and it reminded us yet again how complex is the question of how much regulation is enough to protect all vulnerable investors.
The investigative story by Stephen Long explored a few selected managed investment scheme disasters and detailed some of the tragic results for impacted investors who feel they were not just mislead but let down by slow moving regulators.
Wisdom through hindsight is a wonderful thing and investors who have lost money will always feel aggrieved.
But what makes the cases raised in Long's report so concerning are accusations that money was shifted out of the investment companies to benefit their directors rather than being left in the company to pay benefits to the investors.
Even more infuriating for these investors, it seems such actions by the directors may have been legal because they were disclosed, leading to the fececious but cutting quip by Long: anything goes so long as you disclose.
And to pile insult on top of injury is how some of the investment schemes that were the focus of Long's story were not banks or property funds but really mortgage funds although it seems not all the investors were aware of this, and even if they were it's likely they didn't fully undertsand the significance of such distinctions.
The tragedy of these situations is, however, not that an investment failed but that well intentioned yet naïve investors loaded all or most of their retirement savings into them resulting in them now being destitute, despairing and reliant on the age pension even though they did the right thing and saved hard all their working life.
What is intriguing though is that the reaction to the story, namely that there has been almost none.
While we can't be sure it's most probably because of its philosophical and public policy complexity as it highlights how preventing such investment failures ever occurring would require government regulation so onerous that ASIC would have to in effect personally guarantee investments - a situation and precedence that no government could ever counternance.
The advice industry will rightly say that such tragedies show the value of sound advice, but in this case some of the investors did in fact use advisers but they were associated with the investment product promoters or were incentivised with excessive commissions - again, issues that the investors in retrospect claim they didn't understand.
So maybe, as hard hearted as it is to say it, we just have to accept that just like how car accidents are price we are willing to pay for the freedom to drive on our roads, there will be investment accidents from time to time and the only thing we can do is manage the risks intelligently.
To do this, regulations of course need to be tight and regulators must always be vigilant and police laws aggressively. But no amount of regulation will ever beat a properly informed well-advised investor.
