December 2017 – Put your investor’s interests ahead of your own

Newsletter

A decision has finally been made about a banking royal commission. It should keep the banks occupied for some time and, therefore, not competing with GPS for at least another year.

I note that I still believe that the banks will not return to our segment of lending for some time, if at all. This is due to the regulation involved and it being specialised lending, which is not able to be performed by “robots”.

This is good news for GPS. It will allow us to be even more selective of projects we will fund. It will also soften the landing from any apartment oversupply by restricting starts of new projects.

All I expect from the banking royal commission is a lot of politics and another raft of legislation and regulation.

If the banking royal commission is to be successful, it will need to go to the core and look at “culture”.

GPS has now been operating in a managed investments environment for over 20 years, since it was first legislated in 1997.

A key distinction between operators, like GPS, and the banks, financial institutions, financial planners, superannuation funds etc. is section 601FC(1)(c) of Corporations Act 2001.

In addition to acting in the best interest of investors, operators like GPS have a requirement that, if there is a conflict between our interests and the investor’s interests, to give priority to the interests of the investors.

This would require a quantum change in culture for banks, and whoever else who gets dragged in, as it would mean putting investor’s interests ahead of shareholders.

When I first faced this change of culture in 1997, somebody said to me, “look after your investors and the profits will follow”. I don’t remember who it was that said this to me. I was still a practicing solicitor at that time and the only thing I can remember was the rage which burnt that sentence into my psyche. It was a real shock to the system, but time has taught me that it was true.

Over my 20-plus years as a private lender, I have seen many competitors come and go. One of my theories is that most of those who failed either never grasped the concept, of putting your investor’s interests ahead of your own, or greed made them forget it.

Let’s wait and see what comes from the banking royal commission. My priority for 2018 will be finding and managing more good quality loans for GPS investors.

Debbie (my wife) and I will be off on another adventure to Patagonia and Antarctica in January and early February. I look forward to coming back refreshed and getting on with another successful year.

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