The state-owned company that administers the estates of disabled and mentally-impaired Victorians has lost their savings by investing in high-risk funds.
The life savings of disabled and mentally impaired Victorians have been lost by the state-owned company that administers their estates after it invested their money in high-risk funds.
A Sunday Age investigation has found that State Trustees ignored its legal obligation to act in the best interests of clients, allowing its financial planning division to speculate in high-risk investments that led to substantial losses.
This included putting savings and money from government pensions with LM Investment Management, a Gold Coast-based scheme that lost $800 million when it collapsed in 2013 amid allegations of misconduct.
State Trustees controls more than $1 billion belonging to 9500 vulnerable people who have been deemed unfit to manage their own financial affairs and now depend on the investments made in their names to meet their living expenses.
State Trustees would not reveal how many of its clients lost money in the schemes, citing privacy laws and the need to protect “community confidence” in the system. “State Trustees seeks to take a conservative approach with its clients’ money,” a spokeswoman said.
Among the victims was Christa Simmons, a 75-year-old woman with dementia who was under the administration of State Trustees for 15 years before her death.
Due to privacy laws, the family of Ms Simmons has been kept in the dark about her finances since the Guardianship & Administration Board (now VCAT) appointed State Trustees her financial and legal administrator in 1997.
“It’s State Trustees – it’s practically the government. You assume they have the highest level of integrity and there’s checks and balances in place. We never had any reason to suspect otherwise,” her daughter Darlene told The Sunday Age.
But documents show a State Trustees financial planner invested a significant portion of her entire savings – more than 40 per cent at one point – in a “pension account” that fed into three investments with high- to very high risk ratings.
In 2010, State Trustees reviewed Ms Simmons’ investment position and noted her risk profile should be “moderate”. The report recommended that the pension account balance of $37,894 be transferred to a marginally safer financial product that charged lower fees and commissions.
The recommendation was not implemented and two years later the account had lost nearly all its value.
The major problem was a significant investment made on her behalf in a mortgage fund run by entrepreneur Peter Drake, founder of now-defunct LM Investment Management. When the fund ran into trouble in 2009 all investments were frozen, leaving investors to watch as its value dropped but their money could not be withdrawn. LM eventually collapsed with losses estimated at $800 million.
At the time of her death in 2012, Ms Simmons had just $3700 left in her pension account in potentially accessible funds. Another $15,100 remained trapped with LM and is now considered essentially lost.
In the last year of her life, Ms Simmons had paid $778 in fees and commissions to State Trustees and other financial managers to administer her rapidly diminishing pension account.
Records show that the rest of Ms Simmons life savings at the time of her death – about $63,000 – was being held in a number of other, if better performing, high-risk products, as well as some safer investments and cash. State Trustees had based its investment strategy on the expectation they would need to provide for her financial needs to age 88.
The family of Ms Simmons was completely unaware of the troubled state of her finances until she died, when they began to question State Trustees about her will. But the group, acting as her legally appointed administrator and executor, refused to disclose detailed information.
After a protracted dispute, her daughter took over as executor and obtained some of her mother’s records.
“It’s unfathomable how a government body awarded guardianship over frail, sick and vulnerable people appear to have a licence to gamble with their savings with impunity for the loses,” Darlene said.
She is now considering taking legal action.
It is not known how many other of the State Trustees’ 9500 clients may have lost money in risky investments such as LM.
Documents show the three financial products Ms Simmons’ money was invested in required State Trustees to make a minimum buy-in investment of $20,000, $25,000 and $100,000 for each, suggesting many other clients have been assigned stakes as well to meet this target.
State Trustees has ignored repeated requests to provide figures about its investment activities or losses.
“While a pension fund may reduce over time due to normal withdrawals, an overall financial position for a client whose finances are managed by State Trustees could be stable or even experiencing moderate growth even during a period when most investments were being heavily affected by the global financial crisis,” a representative said.
With State Trustees claiming it cannot disclose information about losses due to privacy rules, it is likely any potential victims may never know they are victims.
The collapse of LM is now the subject of a pending class action lawsuit by law firm Slater & Gordon, which is seeking compensation for investors tipped into the fund on the advice of their financial planners. “The timeline for making a claim runs out soon. Anyone who has invested in LM should get legal advice right away,” said the firm’s commercial litigation lawyer, Mark Walter.
Financial planner-turned-whistleblower Jeff Morris, who exposed wide-ranging malfeasance inside the CBA’s financial planning arm in 2013, said the problems at State Trustees would likely go beyond just one rogue planner.
“The lack of accountability to clients and secrecy in this case makes that a racing certainty. No competent adviser would put clients into these dodgy mortgage funds but it is important to remember that the incompetence is systemic because it is the dealer group that decides the menu of products that planners can recommend,” he said.
The losses are the latest in a series of scandals to plague State Trustees, which was the subject of a damning report from the Auditor-General in 2012 that found it could not demonstrate it acted in the best interests of its clients.
“Flawed implementation, ineffective oversight, and a failure to regularly and systematically test how effective controls are in practice, limit the assurance it can provide … about organisational compliance and performance,” the report said.
In 2009, State Trustees agreed to pay $13.5 million in compensation to investors that were burned in the collapse of Perth-based property scheme Westpoint.
It was also blasted by the Victorian Ombudsman over the quality of care provided to vulnerable people following an investigation in 2003.