Whilst Centro is increasingly looking like it might survive in a down sized form after some strategic asset sales, the same can’t be said for the MFS group which is unravelling at a rate of knots.
The incoming finance director, Graeme Fowler, has had a change of heart and The Australian produced another devastating story this morning which began as follows:
Beleaguered financier MFS is behind a $1 billion New Zealand financial planning firm that poured tens of millions of dollars of investors money into three high-risk investment companies that have collapsed in the past six months.
Regardless of what the bricks and mortar in those hotel assets fetch in any deal with private equity firm CVC, the real calamity comes from the complete destruction of value in the traditional MFS financial services business.
A financial institution simply cannot close the doors on withdrawals and survive, as MFS did yesterday to the 10,000 investors in its $770 million Premium Income Fund.
And why did those 10,000 investors back MFS? Because it paid huge commissions to their financial planners. And where did much of this $770 million go? Into other rapidly depreciating MFS vehicles in one big game of parcel the parcel.
Victoria’s Mt Hotham and Falls Creek ski resorts best demonstrate this game. They are currently owned by the listed MFS Leisure and Living Trust, which paid MFS $110 million to buy the assets in 2006.
The MFS Premium Income Fund has been a big investor in the Leisure Trust which has seen its units plunge from $1 to 36c since November, although it has been suspended for almost a week.
The chief executive of MFS Investment Management, Guy Hutchings, today told The SMH the Leisure Trust remained a “suitable investment” for the frozen Premium Income Fund. Like hell.
At its core, MFS demonstrates the huge flaws and conflicts in Australia’s financial planning industry. The majority of its directors were Gold Coast lawyers and financial planners who are now getting blown away in margin calls after clearly not following standard advice about risk management and diversification.
Alan Kohler has nailed the financial planning industry once again in a cover story for the February edition of Equity – the Australian Shareholders Association magazine.
And there have been many other warnings about the industry, such as this Chris Masters investigation on Four Corners in 2003.
The collapse of MFS will surely trigger a major regulatory backlash and the industry has lost its chief protector in John Howard. Even the Liberal backbencher most identified with protecting financial planners, South Australia’s Grant Chapman, lost his seat last year to a man who is passionate about disclosure and transparency, Nick Xenophon.
Stand by for Gary Weaven and the union-backed industry funds to use all their Labor contacts to ensure the financial planning industry is cleaned up once and for all in 2008.
Today’s Mayne Report reveals a coming Fairfax board tilt to drive Murdoch adviser Mark Burrows off the board.
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