5 September 2018: Financial advice led to portfolio imbalance
Money Week is all about helping New Zealanders get ready for life’s unexpected twists and turns. One of our cases shows the importance of staying vigilant about safeguarding your future.
Kiri, who was in her 80s, met with one of her bank’s financial advisers to simplify her affairs. Kiri knew what she wanted - a low-risk, accessible investment that offered returns competitive with equivalent term deposits in order to supplement her superannuation. She also wanted to invest for less than three years, and for the bank to manage the investment.
The adviser recommended she consolidate her term deposits as they matured and add the principal on maturity to a New Zealand-based low-risk managed mortgage trust. For the next four months, Kiri invested her matured term deposits in the mortgage fund.
Two years later, Kiri discovered she was receiving a rate of return of 2 per cent a year. She complained to the bank that she would have been better off keeping her term deposits. She sought the difference in returns between the mortgage trust and term deposits.
We considered whether the mortgage trust was an appropriate product and concluded it broadly met her brief to the bank. However, we considered the mortgage trust was right for only 20 per cent of her portfolio, in what was otherwise a well-diversified portfolio. We also considered the mortgage trust should have been regularly monitored.
We considered the bank should not have recommended Kiri move all of her money from term deposits into the mortgage trust because:
- term deposits are stable investments, and she had no previous experience of investments where the value could fluctuate
- she was a relatively unsophisticated investor and relied heavily on advice
- the extra risks were not clearly explained
- the mortgage trust investment was sold without any regular monitoring process, meaning she wouldn’t know of any decline in its value and return until it affected her standard of living.
We recommended the bank compensate Kiri for the difference between what she would have received from a 20 per cent investment in the trust and what she actually received. Kiri took the compensation. She later sold her investment in the mortgage trust and reinvested the proceeds in term deposits.
Planning for your financial future can be overwhelming. If you seek financial advice, shop around until you find an adviser who takes the time to understand your financial situation and goals. Make sure the product they are recommending fits with what you need, now and into the future.
Please attribute all comments to Nicola Sladden, Banking Ombudsman
26 July 2018: Invoice scams
We’ve seen a recent surge in invoice scams in our cases, and banks are also reporting an increase.
A Business Email Compromise scam (or invoice scam) is where scammers hack into an email system so they can email people an invoice, imitating legitimate businesses. The logo looks the same, but the numbers are different on the account. Or the scammer imitates the email address of a legitimate business, transposing one or two characters. People are busy and don’t expect to have to check these sorts of details.
“Scammers use our haste to their advantage” says Banking Ombudsman, Nicola Sladden.
Law firms and real estate agents seem to be the most common targets.
The New Zealand Law Society reported at the end of last year that invoice scams were likely affecting law firms, after similar attacks were reported in Queensland. Fraudsters obtain access to law firm email accounts, then use these to email clients misdirecting trust money or settlement funds. Conveyancing transactions were particularly popular.
Similar stories have been shared by real estate companies where home buyers mistakenly pay their deposit to a scammer. These are large sums of money and have devastating consequences for the victims.
Our advice to anyone about to pay over a sum of money is to stop and check, especially if you have not made a payment to that account before. Ring your lawyer or your real estate agent on a number you know is legitimate to double check the bank account number you are paying into.
“This is definitely a case where an ounce of prevention is worth a pound of cure” says Banking Ombudsman, Nicola Sladden.
If you think you may have been scammed, contact your bank as soon as you can. There’s no guarantee that the funds can be recouped, but the sooner you contact the bank, the better the chances of recovery.
Our role is to help people if they have any problems with their banking and they haven’t been able to sort it out with their bank. Banks are required to have appropriate security systems in place and to educate their customers about banking.
You can read our Quick Guide on common scams here.
You can continue to keep up to date on the latest scam alerts through our colleagues at:
26 July 2018: Key trend from cases - scams
We’ve seen more scam cases over the last 12 months, and they’re becoming more sophisticated.
Most people can tell you about a time they’ve had a phone call or email trying to trick them into handing over their bank account details. Or even a request to help a Nigerian prince receive his inheritance. And it becomes the butt of a joke…those guys are so obvious - how do people fall for that?
“Scammers are highly sophisticated. The new breed are masters of manipulation. They use fear to their advantage.” says Banking Ombudsman Nicola Sladden.
Scammers says things like - you’ve done something to your computer and people are hacking into it. Someone has downloaded a game using your wifi and now your system has a virus. You owe money to Inland Revenue.
“Scammers are now far more creative in finding new ways to engage and groom their victims. Accessing your banking details doesn’t come until much later, often hours down the track. But the end game is the same – by distracting you with terrible news, scammers quickly move on to how they can help ‘fix things’, gambling on the fact you won’t stop to check anything until it’s too late.”
Or the distraction may come in the form of good news. You’ve won a prize. You’ve been selected for a holiday. I’ve seen your profile online and I want to get in touch, but my subscription is about to end – email me!
Over the last financial year, we’ve seen a 37 per cent increase in scam cases. That’s a significant step up. The losses are more than you would expect – often tens of thousands of dollars. Sometimes hundreds of thousands. And the impact isn’t just financial. We talk to victims every day who are too stressed and embarrassed to tell their families. Others don’t even want to give us their names.
Our advice to anyone about to click on a link or accept ‘help’ over the phone is to stop and check. Are you being manipulated?
Our role is to help people if they have any problems with their banking and they haven’t been able to sort it out with their bank. Banks are required to have appropriate security systems in place and to educate their customers about banking. They’ll also cover losses for fraud in accordance with the Code of Banking Practice.
When we saw that scam cases were increasing this year, we decided to tackle the issues head on. We were part of interagency fraud forums in November 2017 and February 2018 which brought together various experts to share knowledge and brainstorm solutions.
We had a sense from our own cases and research that seniors were losing the most. So we have made a concerted effort over the last six months to connect with government, industry and consumer organisations with a focus on seniors, especially Age Concern, Grey Power, Rotary and U3A, to share the lessons from our cases. We have also engaged with the telecommunications industry to explore opportunities to combine education messages.
With Fraud Awareness Week on the horizon later this year in November, we are leading a tv campaign to raise awareness about fraud.
“As a country we don’t talk about this enough. We need to get scam-savvy and fight back.”
You can read our Quick Guide on common scams here.
In the meantime, continue to keep up to date on the latest scam alerts through our colleagues at:
26 July 2018: Annual report to 30 June 2018
The Banking Ombudsman Scheme has released its summary annual report detailing another successful year.
“As we enter the second year of our 2017-2020 strategic plan we are really seeing the benefits of preventative model of dispute resolution come to life,” says Banking Ombudsman Nicola Sladden.
“There has been an increase in cases and timeliness, strengthened communications and stakeholder engagement, together with a drop in disputes. We are providing information and guidance to complainants and banks to empower them to resolve their disputes early on, thereby reducing overall dispute numbers.”
The scheme’s overall caseload increased by 14 per cent while dispute numbers decreased, indicating the early resolution service is working as intended.
Customer satisfaction remains high at 80 per cent. “Our working day count and timeliness performance have significantly improved.” The scheme resolved 97 per cent of its complaints within two days and improved its dispute resolution timeframes by 11 per cent.
“The scheme is successful because we can give customers fair outcomes that are more flexible than the courts.” This year 8 per cent more outcomes were favourable to customers compared with last year.
“We have continued to make an impact by sharing more lessons from our cases, strengthening our consumer and industry engagement, and engaging in a large number of policy initiatives to share a consumer perspective.”
In addition to the scheme’s resolution function, the prevention team have focused on raising awareness and accessibility of the scheme.
Based on MBIE’s two-yearly consumer awareness survey, the Banking Ombudsman Scheme is the most well-known financial dispute resolution scheme in New Zealand. “Over the last year our awareness activities have focused on audiences who may not have known about us through our usual channels.” This year the scheme launched an Instagram page, @ombuddies, targeted at youth.
“In terms of accessibility, we continued to make our service and our educational information more accessible and easier to use by putting all of our content into plain English.”
The scheme also invested in a new website which has better search functionality and is easier to navigate. Since its launch in mid-April more people are using online channels to submit their complaints and there has been a good uptake on live webchat.
The annual report can be read here.
31 May 2018: New Code of Banking Practice published today
The New Zealand Bankers’ Association has today published the sixth edition of the Code of Banking Practice. The sixth edition adopts a principles-based approach which the Banking Ombudsman Scheme (BOS) supports.
The code is a high-level statement of what customers can expect from their banks. It sets out the principles of good banking practice and sits above the detail that is contained in each bank’s terms and conditions.
In our view it makes sense for the code to be expressed as principles of customer commitment. These are promises to the customer from the banks that should remain ‘evergreen’, regardless of what new technologies and products emerge on the banking landscape. It gives BOS more flexibility in determining what good banking practice is and how banks should conduct themselves.
A principles-based approach also makes the Code more accessible to customers. If codes of practice are too prescriptive and detailed, the message for customers on what their rights are can also get lost in the detail. We want customers to be informed and empowered to apply their rights.
There is no change to the existing consumer protections in the sixth edition of the code, rather the intention is to give more flexibility in determining what good banking practice is and how the banks should conduct themselves.
In our submissions on the draft code, we strongly supported retaining a clear statement about the reimbursement of genuine victims of fraud. We submitted that an express commitment to this principle was appropriate to ensure consumer protection. We are pleased that commitment has been retained. The response from NZBA to our submission is attached.
The clause enables victims of card and electronic banking fraud to be reimbursed for losses (to the extent the customer has not acted fraudulently or negligently or caused or contributed to the loss by breaching the terms and conditions).
Our data indicates an increase in scams occurring in New Zealand. We have seen a 38% increase in fraud related cases so far this financial year (compared to the same period last year). We regularly share insights with the banks about the cases we are seeing.
We are also concerned about the broader impact this increase in scams is having on New Zealanders, not only in terms of financial losses, but also in terms of stress and emotional impact, and the loss of trust in core services. We know from the CERT NZ data released this week that 87% of losses impact New Zealanders aged over 55. We are therefore taking the initiative to ensure key messages get through. We are working with the industry to lead a fraud prevention campaign to raise awareness about avoiding scams and exploring opportunities for joint initiatives with the telecommunications industry.
Attachment(s): Letter from NZBA May 2018
Media contact: Nicola Sladden 021 808 059
Please attribute all comments to the Banking Ombudsman, Nicola Sladden