This is Molly after we spoke to her about the importance of compliance.
For her, the rules are less complicated, do not pee inside! However, there are still consequences if she ignores them. Nevertheless, with one simple compliance statement, she nodded
We get it. For many, compliance can be a snooze-fest. Compliance statements lack the cracking page-turning pace of a John Grisham novel, but the rules we must meet are embedded in those pages. There are a lot of them because there are a lot of risks. Little is more personal to us than our money.
The rules, while necessary, are increasing in complexity, sometimes leaving us to feel that we are made to jump through the hoops of a bored bureaucrat’s design in some sort of bizarre other-worldly circus. Then again, what if we were to re-frame how we think about compliance? Familiar with the names Bernie Madoff and Melissa Caddick? Madoff died in prison about 12 months ago while serving a 150-year jail sentence for defrauding up to US $65 billion from his clients. He fooled some of the best.
Closer to home is Melissa Caddick. Many of us had heard of Caddick in 2020 when the Australian Securities and Investment Commission (ASIC) raided her home, froze her bank accounts and properties, and prevented her from leaving the country. Court documents revealed that Caddick’s fraud had started some 11 years earlier when she set up her financial firm without the necessary AFSL (Australian Financial Services Licence). An AFSL, issued by ASIC, is required for all those providing financial advice to clients or trading in financial products or markets. Among other things, an AFSL imposes ongoing conditions such as legal compliance, training and development as well as sufficient financial resources to carry on the approved business. It is a means of oversight in a complex and changing world.
Unlike advisers at The Investment Collective, neither Caddick nor her company had an AFSL. What Caddick appeared to have was an abundance of confidence, an enviable lifestyle (both leading to an impression of credibility) and a lack of remorse or regret about conning friends and loved ones out of their hard-earned cash. It also appears she played on certain biases, a key one was herd mentality bias (or an ‘everyone else is doing it’ strategy). As humans, we are social animals who want to be part of the herd. Confirmation bias was at play. From what we know, Caddick’s investors took her at her word, accepting Caddick’s after-the-fact confirmation about investments and trades that she had made on their behalf. It is estimated that Caddick defrauded approximately 72 investors of around $23 million. Among these investors were family and friends – people who both loved and trusted her and who perhaps aspired, at Caddick’s urging, to greater levels of financial success, increasing their vulnerability and decreasing their critical thinking. She created the perfect storm of deceit, desire and dependency by carefully controlling the information she disseminated to them. As for Madoff, he fooled some of the best, even when the reported returns were too good to be true.
The saying is true – “if it feels too good to be true, it probably is.” The reality is that investment markets go up and down, our needs change and although we might wish to be part of the herd, that does not allow for strategic differentiation and tailoring. The Investment Collective exists to ensure the integrity of your investments (but not to guarantee the outcome). Anyone who promises high returns with little to zero risk is not telling you the full story. Investment carries risk, but most aspects of our lives do.
At The Investment Collective, our advisers are registered with ASIC. This means that The Investment Collective holds an AFSL and as a condition of that, our advisers are appointed as authorised representatives. You can find the ASIC registration for each of our advisers at the following website.
Coming back to compliance, and speaking for myself, compliance sometimes makes me want to tear my hair out. There are two ways of looking at it; one is to characterise it as a costly, burdensome, bureaucratic exercise in box-ticking; the other is to consider it as simply ‘good business’.
Please note this article provides general advice only and has not taken your personal, business or financial circumstances into consideration. If you would like more tailored advice, please contact us today.