Your Money & You – June 2012

Companies you should NOT deal with

If you receive a phone call or email from someone you don't know offering you a great investment opportunity, be very wary – it may be a scammer trying to take your money.

Before you invest it's important to check the list of companies you should not deal with on www.moneysmart.gov.au.

Many scams come from overseas. The scammers target Australians because Australian authorities don't have international jurisdiction to prosecute them. But ASIC can warn other people about the scam and notify the authorities in the scammer's country.

Warning signs

Scammers use clever tricks to reel you in. The offers seem genuine but are carefully designed to trick you into giving away your money or personal details.

An offer may be a scam if the person:

• doesn't have an Australian Financial Services licence or says they don't need one;
• rings many times and tries to keep you on the phone;
• says you must decide quickly or you'll miss out on the deal;
• uses the name of or claims to be associated with a reputable organisation to gain credibility;
• offers you glossy brochures or certificates, or directs you to a slick website.

Remember - glossy brochures and professional looking websites are not evidence that an offer is a good investment or even a real deal.

Questions to ask

Ask the person some questions to check their legitimacy:

• What's your name and what company do you represent?
• Who owns your company?
• Does your company have an Australian Financial Services licence and what is the licence number?
• What's your address and phone number? (then double check in the Yellow Pages as sometimes scammers try to imitate legitimate companies).

If they avoid answering, it's probably a scam. Hang up the phone, don't respond to the email and stop dealing with the person.

If they answer the questions, you still need to do some checks. Check if their name is on the MoneySmart list of unlicensed overseas companies - though remember it's not a complete list and just because a name isn't there doesn't mean they are legitimate. Always check their licence number if they claim to have one. Go to 'Check ASIC lists' on the MoneySmart homepage.

Overseas operators can be regulated in their own country. Check on the International Organization of Securities Commissions website, www.iosco.org. Then you can contact the overseas regulator or search its website to see if the company is registered or licensed by them.

How ASIC can help

ASIC wants you to report all investment scams. Even if we can't prosecute the scammers, we may be able to warn other people.

Generally ASIC won't be able to help get your money back if you've sent it overseas, as the overseas company is outside ASIC's jurisdiction.

But it's important to report scams to help stop them spreading – go to www.moneysmart.gov.au for how to report a scam. If you prevent one person from becoming a scam victim, you're doing your bit to stop scams.

Greg Medcraft
Chairman
Australian Securities and Investments Commission

Don’t buy someone else’s debt

When finance companies and other lenders make loans to consumers they often ask for ‘security’ for the loan in the form of personal property to protect their interests. Probably the best known example of this is a car loan – whereby the lender can repossess the vehicle if the borrower fails to pay the loan out in full and on time.

The danger for you is that if you buy personal property - for example a boat - which is subject to an undischarged secured loan, the lender may have the right to repossess the boat from you. Leaving you potentially with your own loan to pay, if you borrowed money for the purchase, but no boat!

So when you are buying a valuable item of personal property, one of the most important checks you can do is to confirm that it is not subject to an undischarged loan.

How to check for outstanding loans

Help is at hand. This year the Commonwealth Government introduced a new national register – the Personal Property Securities Register (PPS Register). The PPS Register replaced 23 separate Commonwealth, State and Territory registers, including those dealing with used motor vehicles, which were transferred to the PPS Register in time for the PPS Register commencement on 30 January 2012.

A PPS Register Search Certificate can tell you key details about a range of personal property (most types of property besides real estate), including the make and model and perhaps more importantly whether the property has:

• money owing on it
• been or is ‘written-off’
• been stolen
• been or is registered.

To find this information out all you need to do is contact the PPS Register:

• by telephone to 1300 007 777
• via its website www.ppsr.gov.au.

The PPS Register levies a fee for the search certificate, but it is well worth paying for if you are thinking about paying serious money for property like a car, boat or trailer.

Who can register an interest on the PPS Register?

According to the PPS Register website, a range of parties are able to register an interest in personal property including:

• finance companies; and
• business operators who sell personal property on credit.

Importantly, individuals are also able to register an interest in personal property, for example, in a situation where a long term relationship breaks down and the partners own valuable property together.

We will write more about some of the pitfalls and how registration can affect the owners of the personal property in the next edition of Your Money and You.

Written off vehicles – buyer beware!

Following the natural disasters in many parts of Australia over the past few years there have been vehicles turning up for sale with flood and other damage. You should exercise additional caution if you are considering purchasing a vehicle that is recorded as written off on the PPSR Register. Firstly, if a vehicle is classified as a ‘statutory write off’ it should not be sold at all. But even if the vehicle is classified as a ‘repairable write off’ it will need to pass a vehicle inspection before it can be re-registered.

Want to know more about buying a car?

There is plenty of good guidance available to help you search for and select the right car for you and manage the associated risks. The ADF Financial Services Consumer Council also an e-learning module of its website - http://www.adfconsumer.gov.au/elearning/buying_a_vehicle/ - and other useful information http://www.adfconsumer.gov.au/publications/buying_a_vehicle.html.

The State or Territory where you are based will have an office of fair trading dealing with consumer protection. These agencies can provide you with a wealth of advice and information about your consumer rights and the law dealing with motor car trading in that jurisdiction. Finally, the State based automobile associations like the RACV, NRMA and RACQ also provide information and advice to consumers. If you are in the market for a car it is recommended that you ensure you are fully informed before committing yourself.

Investing for a successful retirement

We’re all fascinated by the capital value of our assets. You only have to see how slavishly the intra-day and overall daily movement in share prices are reported and analysed to understand this point.

In addition our optimistic nature and our desire to invest low and sell for a decent profit means we can’t keep our eyes off capital values.

This is a fundamental mistake especially when dealing with our retirement income needs. This fixation with the capital value of assets has led us down an investment dead-end of frustration and unrealised expectations.

The consequences of fixing our gaze on capital values delivers two inter-related problems. Firstly it means the income and capital returns are often reported as one amount not as two distinct amounts. For example many investment funds reinvest income and use one unit price. This creates the second problem especially for retirees – they’re forever dealing in notional asset values even when paying pension income which means that when a pension wants to pay an income it effectively use an element of asset values to pay that income.

When thinking about retirement income our focus has to be primarily on the income that an investment is expected to pay. In other words, our focus in retirement should be on the cashflow generated by our assets. The value of the assets is important but not as significant as expected cashflow.

For pensioners their investment income has to last a long time because many people will live to an old age.

It also has be income that covers our living expenses and essential capital assets that need replacing or repairing such as our home and car.

When we retire consumer inflation won’t magically stop. This means we need to receive income from investments that can reasonably be expected to increase each year by either inflation or prevailing economic growth.

In our next newsletter we’ll discuss why inflation is a much bigger problem for retirees than it is for people still working and we’ll also discuss some of the issues you need to take into account when generating your retirement income.