It has been 7 years since the GFC hit, decimating many people’s investments, including about 3,000 of my 14,000 odd clients. It created difficult times for some.
And I apologise, without reservation for the role that I or my companies took in that.
About 20% of our clients had invested in structured products, or one of my companies that didn’t perform. These went on to make “hard” losses (losses that would never be recovered).
The other 80% of clients would have invested in managed funds or other investments that had “soft” losses – in other words they may have gone down with the market but also went back up when the market recovered (which it has done, spectacularly).
I stay in regular communication with people from both groups. And I still have many thousands of “fans’ who did very well from the advice we gave years before the spectre of the GFC reared its ugly head.
Life is 10% what happens to you and 90% how you react to it.
– Charles R. Swindoll
The Structured Product Story – Designed specifically for our clients
Our clients, like most people, wanted to invest. Problem is they were cash rich, asset poor. Most had good jobs and good cash flow but didn’t have large amounts of capital available to invest. This was limiting their wealth creation potential.
The obvious solution was to borrow money to invest because they could afford to. But most of our clients had low to medium risk profiles so we had to find a way they could borrow and not be exposed to too much risk.
The first rule of wealth creation – protect your capital
When designing the products we kept in mind the first rule of wealth creation – protect your capital. We knew our clients had borrowing capacity but if they used traditional mechanisms like Margin Lending they would be exposed to capital loss.
What we really wanted to protect against were significant market falls. If a client used 60% gearing they would be exposed to margin calls (where they would have to either sell or add more capital) with “only” a 20% market fall. And they would suffer an irrecoverable loss if the market fell 40% plus they would still have to pay back the loan.
So we created a product that was 100% capital protected – no matter what happened in the market, no matter how far it fell, your capital would be protected.
The trade off was that you would have to continue to pay the loan interest until the end of a set term – usually 5 years (but up to 7 years).
So the risk was defined – the total amount of the interest payments across the term of the loan.
We even secured excellent interest rates – 7.5% to 8.5% when Margin Lending was 12% to 14% per annum.
So over a 5 year term the risk of investing was the interest times 5 years – on a $10,000 loan that would be 8.5% x 5 = $4,250. The interest was tax deductible and you could pay it off over the period of the loan monthly.
And we weren’t greedy – when most people in the industry were taking fees of up to 2% per annum we limited our fee to 0.7%. There was plenty to go around.
Plus if the market went up we were able to get profit lock ins at certain points so the gains were protected as well.
A product that had 100% borrowing, Capital Protection, fixed interest payments, tax deductibility, low fees, and profit lock ins. – we thought this was genius. Seriously.
And so we promoted it heavily. And over 3 years we got $1.3Billion in investments. (That’s not a typo).
Unexpected market conditions
We expected during the life of the products there would be a market correction.
What usually happens is there is a very rapid market run up over about a year (and we would take advantage of that through the profit lock in feature of the product), followed by a rapid collapse of the market brought about by a credit crisis.
The US credit crisis was already on the horizon but nobody expected that to play out as rapidly and dramatically as it did.
At the time we sold the products there was no obvious indication of a market correction – the market was moving upwards but valuations were realistic and credit freely available.
But all of a sudden US banks started failing and the bottom fell out of the market.
That was ok because, remember, our products were capital protected.
But what we did not expect was that both the market and interest rates would fall at the same time. Usually a market crash is precipitated by declining credit due to increasing interest rates.
As companies borrow more and more to grow and do take-overs etc risk increases and interest rates increase to reflect that. Eventually the interest rate becomes too high and the leveraged buy outs, and other market plays fall over taking the market with them.
In this case the market crash took place in a low interest environment and Governments used monetary policy to stimulate the economy so interest rates stayed low.
This meant that bond yields also stayed low. The capital protection in the products was provided by an investment in bonds. That meant that the fund managers had to allocate more and more of the fund’s available assets to cash to achieve the capital protection until 100% of the fund were cash allocated.
This meant that the funds could never increase above the original capital value and never be reinvested in the market. They became “cash locked”.
Even still, remember, our clients were protected from the horrendous fall in the market and they still had fixed interest payments.
We thought we had done good.
To solve a problem – a change in thinking was necessary
The significant problems that you face today cannot be solved at the same level of thinking you had when they were created.
I’m a very tenacious person when presented with a problem. When others say it can’t be done I’m usually with the people finding out how.
I had $7million over my own money invested in these products. I never sold anything I didn’t invest in myself.
So even without the pressure of 3,000 of my clients investing and $1.3Billion in funds under management I wanted to find a solution to getting these funds reinvested.
So I put my team and the very clever team at the fund manager onto it, but frankly they only came up with solutions that didn’t excite me. It was only when I insisted I get involved myself that the solution was found.
I can’t tell you the details because they’re confidential but I discovered a major leverage point that nobody else saw.
Yes it would require a lot of effort, yes it would require us to give up almost $2million in commissions, fees, and other income but if we were prepared to do that would could re-jig the funds and get them invested again.
I usually give away credit but in this instance it needs to be said – if I had not seen the leverage and negotiated the high level agreement to take advantage of it, all of the $1.3Billion would have remained cash locked.
And nobody else in the country (as far as I know) came up with the same or better solution.
The head of the division even conceded it was the toughest negotiation he had ever been involved in with more than just money at stake and I was the toughest negotiator he had ever encountered.
I’ll give my team all the credit for the hard work that followed, sorting out and negotiating the thousands of details such a complex restructure required, particularly when applied to 3,000 people, and the effort they had to put in to get the clients to transfer across – all 3,000 clients needed to be contacted – we had all our team on it, every person had to have the change explained, 3,000 pieces of advice had to be generated. We ran information evenings and web-casts to explain it. That process alone cost us at least half a million. In the end about 94% of people converted.
Am I’m pleased to say, from my point of view, it was a success.
All of the funds ended up with a capital gain from that point ranging from 11.46% to 64.45%. The average was 20.95%, significantly offsetting interest paid.
The outcome was significantly better for our clients because of the efforts of me and our team to make it so.
An unexpected backlash
With all of this effort in designing a product that we thought was genius then all of the effort we made in fixing things when the market acted in a way virtually nobody predicted, plus having expended $2.5million of my own funds and months of my entire company’s efforts I honestly believed that we would be appreciated by our clients.
And, to be fair, the vast majority of them saw what we did, appreciated our efforts, and took their losses on the chin.
After all the products actually performed exactly the way they were designed to – capital was 100% protected.
A small minority of our clients have never forgiven me for the advice, recommendation or just marketing to invest in a product that caused them loss.
An even smaller group hold on to such vitriol that I still get occasional death threats, or abusive emails or other such negative communication. Most of which I read and delete. Some I respond to where I think it will make a difference.
Personally, I have never been one for blaming other people for my problems, even if they were responsible for them. In commercial terms I have gone to the courts to have contracts enforced, sued people who tried to take advantage of me or my companies, but walked away from many losing deals and situations accepting that I got myself in and it was up to me to get myself out. I always believed that accepting personal responsibility for everything in my life – the good and the bad – was the fundamental building block of personal development.
When we meet real tragedy in life, we can react in two ways – either by losing hope and falling into self-destructive habits, or by using the challenge to find our inner strength. Thanks to the teachings of Buddha, I have been able to take this second way.
– Dalai Lama
A pretty “normal” approach to financial services
In the end I owned a pretty “normal” financial advice firm that employed pretty “normal” financial advisers who were dedicated to getting good outcomes for their clients.
We had very strong marketing and never hid the fact that there was a good return in it for us as well. We didn’t always get it right, that’s for sure, but I believe the majority of the time we conducted ourselves with integrity and with the best interests of our clients at heart.
Our approach to financial planning and financial services was actually quite vanilla. Quite normal. Where our company was different was our marketing and our systems – that’s where we got our leverage.
I’m actually risk adverse with a strong respect for authority so I never wanted to get into trouble. I was happy to push the boundaries in our marketing but never in our financial planning. I was happy to create innovative and clever products but always within the law and with the most respected firms in the industry.
We had full time compliance officers checking everything we did and external compliance checks to ensure that everything we did was legal and complied with regulations. Wherever we found a hole or a team member who stepped out of line we dealt with that swiftly.
And remember I employed 170 staff – it was a big organisation.
Our lives are not determined by what happens to us but how we react to what happens, not by what life brings us but the attitude we bring to life.
– Wade Boggs
In other words everything we did was 100% legal, 100% compliant, and usually by a very long margin. Every audit we had from any regulator only turned up minor issues which we worked hard to correct. That’s why, in over 20 years in the industry we never had bad publicity. We always wanted to do it the right way first and if we made a mistake we would fix it.
How people treat you is their karma; how you react is yours.
– Wayne Dyer
But no matter how much we tried to do the right thing, some people still blame me for their losses.
As their financial adviser I agree I had a duty to them, and whilst I was usually very enthusiastic in my promotion of investment products that I thought were terrific, I never knowingly sold a single product to anybody who I thought could not afford it if things went wrong.
I spent five years of agony at our company dealing daily with complaints, sorting the genuine people in distress to others who were trying us on, bridging the complexities of legislation with the requirements of our insurers and endeavouring to get a fair outcome for all.
For any client we found, that for whatever reason, the investment could reasonably have been predicted by their adviser as not appropriate for their needs at the time of investing we compensated.
It’s easy to forget we were not alone in this. Hundreds of firms compensated their clients and were the subject of complaints to the Financial Industry Ombudsman Service. In some cases those compensation claims ran into the tens of millions of dollars. One of the most trusted banks in Australia – the CBA may have to pay hundreds of millions in compensation. Despite being one of the largest private financial services firms in the country we didn’t even make the FIOS top 25 firms by complaints even though most of the brands you would recognise were well represented.
We frequently won FIOS complaints against us because it was obvious that the client knew what they were getting into and had the risks explained to them by their adviser. And we lost some because this was not the case. And again, those people were compensated.
So that’s why we had a clean slate with regulators and the industry ombudsman.
The ultimate betrayal
When you work hard and act with integrity you expect those around you to do the same and I am happy to say that the many hundreds of people I employed over the years that the vast majority of them were good people, with good values and a strong work ethic.
As a company gets bigger of course it becomes harder to always find the right people, especially in financial services where a lot of people are attracted by greed.
Just when our company was getting back on its feet, a group of stockbrokers decided they weren’t earning enough. This is despite the fact when they came to us they would have been flat out earning the $60k retainer we paid them let alone the $200,000+++ they were earning just a year later. They demanded more. A bigger slice of the pie. More commission, no penalties for their losses or trading mistakes, and less scrutiny from our compliance team (allowing them to do higher risk, bigger commission trades).
Their Manager and I clashed on numerous occasions – I thought their demands were unacceptable, he thought I was an idiot (and many other things un-publishable), and set out to prove it. I have never experienced such vitriol from somebody I employed. Managers, despite their own personal opinions, usually acted in solidarity with the rest of the management team.
While I was overseas he orchestrated a walk out of all but one broker. He negotiated sign on bonuses with their new company of up to $80,000 each and despite water tight contracts protecting our interests, ignored those and poached many of our clients, usually telling lies about the state of the company and other things.
Of course we sued. Even if I didn’t want to (and I did) we would have been obliged to protect the interests of our shareholders.
In an internal email discovered by our forensic team his stated aim was to “bring down the company”. Seriously, what type of person does that? We employed over 70 people at that stage and yes, we all knew the company relied on the cash cow that was our Stock Broking division, but who would deliberately set out to destroy the jobs and lives of 70 people just because he hated his CEO, and his $300,000+++ a year management job?!?
They knew that we had limited resources and our cash flow would be decimated by their poaching and they thought we couldn’t mount a successful legal battle and I will admit it was a struggle, but it soon became obvious to everybody we would win. Their actions were so belligerent, so obviously against their legal agreements with the company, and so damaging we didn’t even need the best legal team to win.
Their response to our “Statement of Claim” in Court was basically a 40 page document of lies and slander. Ok, so they hated me, but their claims were wide ranging and made against just about everybody in the company. Most didn’t make sense, used terms that were inaccurate in their application, and often contradicted each other. They even accused me of sexual harassment because one morning in the team kitchen I talked about my weekend away with my girlfriend!
The claims were so obviously false we were astounded that a top tier legal firm would allow them in a document tendered to the court – it would then, after all, become perjury when we proved them wrong which we set about doing.
But what we didn’t expect was their tactic was not to win in court but to attack us another way. Remember they had a lot to lose.
Back in the black but to no avail – time had run out for me
Fact is we recovered quickly. Much quicker than anybody, including me, thought. After an initial panic most of our clients saw through the lies and many of them came back.
We rebuilt the team, taking care to employ people with integrity, and talked with reason and logic to our clients who responded.
Six months later we had about 60% of our revenue back. We were back in the black.
But unfortunately for me the loss of cash flow breached my covenants with the bank and seeing our relationship was already strained they insisted I find a buyer for my shares so I would no longer have exposure if things continued badly. Our quick recovery didn’t persuade them to allow me to hold on. They were so keen to exit I sold my shares for a fraction of their value but the bank accepted that and indemnified me from any further personal obligation, so that was good of them.
Our first ever negative mainstream media – an effective attack
The brokers were losing and they knew it.
What they didn’t know is the new owners had no appetite to continue the law suit, and wanted to negotiate an outcome. If things had happened just a little bit quicker the ironic thing is they would have been a lot better off.
But no, they used an approach long attempted by disaffected former staff the world over – they went to the media.
I was approached with the same story angle by two of the three of the commercial TV stations and two press media journalists. I listened to their claims, realised who was behind it, and explained our side of the story. I produced evidence and material to back up our side and took the time to answer their questions. And because of this they didn’t proceed with the story.
For some reason a journalist from the national broadcaster took a different approach and ran with a negative and quite sensationalist story based almost entirely on the claims made by the former brokers.
I was on holiday and was unable to spend the time with the journalist necessary and left it in the hands of my PR and Legal people to deal with. I thought it was so obvious, as it had been to the other media, that the former staff were lying, so believed everything would be ok.
I had already sold my shares so it had no material effect on me but the damage to my reputation was huge and still lingers despite all evidence to the contrary. Without the former staff’s claims there was no story. Every financial services firm in the country had clients who lost money. This was sad but we were no worse than any other – there was no story in that.
So after five years of trying to sort out every problem and complaint with as much integrity as possible to deal with this at the 11th hour was devastating to me.
The media is a powerful force, one which can do great good but with no right of reply and no ability to correct wrongs it can also be damaging. The story really wasn’t that bad. Most people who knew me saw through it and I had hundreds of emails, phones calls, texts and social media messages from friends, colleagues and clients in support.
And if I had still been in the business we could have shaken it off and continued on, but I had already sold and the new owners wanted to distance themselves, so there was little I could do.
A Thorough Investigation
They called for investigations – perhaps in response to that, we were checked over multiple times and in detail by external regulators and no further action was taken. I believe that was because we always acted with integrity, reasonably and within the law.
But some people just won’t let go. They think that because they lost money there must have been something evil or illegal about it, but there wasn’t.
Financial Services is difficult at the best of times. Markets go up and down and sometimes people lose money and that’s hard, very hard. Most financial services companies view those people as collateral damage and roll on but I never did. My goal when I started was to help people live a better future, to live their dreams. Nobody dreams about losing money, that’s a nightmare, and it is in fact what we always tried to avoid.
It’s why we recommended structures products in the first place…
They were designed to prevent losses. And they DID!
But I get it – even still, after all that effort, they still lost money. But surely spending time in their life wishing another person, even that person you hold responsible for your loss, despite their best efforts, under a bus is not a useful way to live?
Don’t cling to negative feelings. Anger is nothing more than an outward sign of hurt, fear, guilt, grief or frustration. While the pain may never completely disappear, forgiveness can help you release the anger and bring those in your life closer to you.
Forgiveness is what you do for yourself, not for other people. When you forgive, it doesn’t mean that you approve of what’s happened. Rather, it means that you’re giving yourself permission to move on with your life.
– Dr Phil
My One “Regret”
And the ironic thing about all of this is that I didn’t profit from it. In the end I lost millions from my foray into financial services.
Quite frankly I was rich well before I ever started that business. I did well out of property and share investing and had sold a few of my businesses for millions.
Our seminar companies made excellent profits and if I had stuck to education I would have continued to do well.
Changing over to personal financial advice is one regret on my of “if I had my time over” list. People loved our seminars and almost universally did well out of them, some of them even became millionaires out of it.
But anybody thinking I’m living high on the lamb now because of my financial services companies should think again. I am not. Everything from the sale of those companies went to the bank. I held nothing back. I wanted to be able to look everybody in the eye and say “It might not have worked out as I intended, as I had hoped, as you wanted, but I gave it everything I had”.
Anything I have today I have due to hard work since, and the graciousness of my friends.
But here’s the thing…
Even though I have suffered bouts of depression, anxiety and personal suffering, I decided 30 years ago that life was meant to be lived. So I’ve gotten on with that.
We can’t hold on to pain and suffering any longer than it’s necessary to gain the lessons from it. Then we need to move on.
I feel sorry for anybody sending me death threats or any other threats a decade after investing in a product I promoted to them, no matter how bad the outcome. All of them are finished now, most years ago. And if somebody is holding onto that much anger towards me they are using up energy that they could direct into a more positive outcome for themselves and their future.
One last apology
I apologise, without reservation to any person who lost money through investing with me, for whatever reason, who believes it’s my fault.
So it’s time to forgive, if not forget, and let go.
But I’m not asking for forgiveness for my sake. I’m asking it for your sake.
Oprah said it best: “Forgiveness is letting go of the hope that the past can be changed.” Forgiveness isn’t about saying that whatever happened was okay, right, or just, but about letting it go.
Forgiving is releasing the power that a certain event has on you. By not forgiving you are keeping your mind in the past, thinking and wishing that things could have been different. This traps you and makes you feel powerless.
Forgiveness puts you back into the present—the only time that truly exists—where you have the power to live free and happy.”
Letting go of the past and moving on to life as best we can live it today is the only way forward.
It is a great burden for me to have caused pain and suffering to others. And I don’t wear that lightly. Even the great joy that I have brought to my clients and friends is always tainted by that. The scar runs deep.
But I can’t live the rest of my life in the past. When things went wrong I did my best to fix them. Me and (most of) my team did more, spent more, fixed more than any other financial services company I know of to make things right.
So, with forgiveness it’s time to move on.
If there is a way that I can help you email me @ firstname.lastname@example.org
by Peter Spann
Peter Spann is a business coach, writer, presenter and investor.
His goal is to help people make their dreams come true.