2005: House of Sand – Waddington

I’ve been a financial adviser for over 20 years, my industry is full of people constantly believing that they have the best idea for the next money making exercise. In reality the vast majority of so-called good ideas make money for those selling the product, not those investing into it. I often refer to the Californian gold rush, in which those that made money were the ones selling the shovels and picks, not the ones doing the digging.

Today I learned of yet another sorry tale, this time a local firm that were “experts” in property investment funds, that has a number of joint ventures firms (Bentley-Leek Properties Ltd) that have gone bust, losing clients over an estimated £22m and creating an awful headache. The firm was involved with multiple joint ventures, formed with separate firms of Solicitors and Accountants. Sadly, this will impact a number of people in the local area who have been advised to implement this type of investment in Surrey.

Look, I’m not going to throw mud, but joint ventures exist to make money and usually because the cost of going it alone is too great or too arduous. The legal structure of the companies can become incredibly complex. Stand back for a moment and reflect if this is really what investing is meant to be about. The detail is buried in a mountain of complexity and paperchasing.

The company concerned is also an IFA and appears to be involved with Lusso Homes, although this is not completely clear. Lusso provide “high quality” homes for property investment. The investment brochure online provided by Lusso, has a table on page 10 that frankly I don’t understand – and I do this for a living. The numbers, though are enticing and anyone from the area knows that property in these locations is not exactly cheap. This may not have been their undoing (I don’t know the detail) but the fund also had property investment in Dubai – which might be a wonderful place to shop for luxury items, have some amazing architecture, but has little to do with property expertise in Surrey. One of the reported failed projects which intended to provide an annual return of 10% by investing in Dubai, used properties in Esher as security. Some of this investment was established via pensions (a SIPP).

As a consequence of the collapse, the IFA firm has also had to close. BDO have been appointed  for the property company as the administrators and have written to investors, who are reported to be livid with the news reported that Directors of Bentley-Leek Properties Ltd also borrowed £2m from the fund.

There are some key points to make, that many forget all too easily. Property will not always go up in value. It is not a safe form of investment. It is not very liquid. Sure it can be part of a portfolio, but it should not be the entire portfolio. Investment in property abroad is much more “risky” than property in the UK. In nations where regulation is lax or non-existent, I get particulalry concerned. Our own regulators failed to identify or highlight practices that led to the credit crunch, so what chance have smaller, less transparent nations got? I don’t wish to sound simple, but frankly – if you don’t understand how the investment works within 2 minutes walk away. If it sounds too good to be true… well it probably is.

We all make mistakes. It is very easy to get finance wrong. I am not immune from making mistakes, to my knowledge nobody is. However, I imagine, believe (and know) that clients expect an adviser to properly know the investment product that is being advised. The FSA certainly believe this and so do I. This is yet another example of why I believe that my role is to help clients reduce the number of mistakes that they may otherwise make.

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