Urgent warning 120,000 Aussies missed before their investments were frozen: How the Barefoot Investor sounded the alarm TEN YEARS AGO

Barefoot Investor Scott Pape warned investors against parking their money in one of La Trobe Financial’s term accounts nearly a decade ago.

A reader had sought his advice in 2016 on whether investing $70,000 from a property sale into the company was ‘too good to be true’.

Mr Pape said while the term accounts offered higher rates than a traditional bank term deposit, the products were higher risk.

His advice has re-emerged after around 120,000 Aussies were frozen out of their La Trobe Financial funds last week, over the watchdog’s concerns the products may not have been offered to the right type of investors.

‘The truth of the matter is that La Trobe is lending your money out to people the banks won’t touch, that’s why the interest rates they offer are so good,’ Mr Pape said. 

‘Right now, everything is hunky dory, but the law of averages says there’s a recession coming, and probably soon.’

Mr Pape went on to explain that during the last recession in Australia, in the 1990s, depositors ‘got screwed’ chasing higher interest rates. 

‘The question you need to ask yourself is whether getting an extra four per cent on your money is worth the risk of losing some of your capital, given that you’re not covered by the government deposit guarantee,’ he said.

Currently, a term deposit held in a bank is government-guaranteed up to $250,000.

However, La Trobe Financial offers term accounts, but they’re not a bank, so they aren’t covered by the guarantee and while they offer higher rates than term deposits they carry more risk. 

Around 120,000 Aussies have been frozen out of their La Trobe Financial funds over concerns by the corporate regulator ASIC the products may have been marketed or offered to people who should not have been investing in them based on their risk profile or financial situation.

La Trobe Financial’s 12-month term and two-year accounts are invested almost entirely in loans secured by registered first mortgages, with the exception of small cash and term deposit holdings kept to meet cash requirements. 

ASIC last week placed interim stop orders on three of La Trobe Financial’s seven fund offerings, preventing them from receiving new investments.

They include the company’s flagship 12-month term account, its two-year account, and its US Private Credit Fund.

The impacted accounts are worth a combined $11.5billion. 

The interim stop orders will remain in place for 21 days, or until ASIC’s concerns are addressed. 

‘These products are not bank deposits,’ ASIC said in a statement.

‘The rates of return are not guaranteed and are determined by future revenue of the pool of assets that comprise the account, the investment may also not generate the expected income returns and there are conditions around withdrawals.’

On its website, La Trobe promotes itself as one of Australia’s premier alternative asset managers, with $20billion in assets under management.  

In a video statement to investors, La Trobe Financial chief investment officer Chris Paton attempted to reassure investors their money was safe.

He said the investment products were backed by small, carefully chosen loans spread out across different types of borrowers. 

‘We manage these investments cautiously to reduce risk,’ he said,

‘These portfolios are designed to perform across the cycle and perform they have for investors for over 35 years. 

‘While we work through these matters with ASIC, we will continue to manage our portfolios conservatively. 

‘We will continue to pay monthly interest to investors as we always have, and we will continue to pay maturing investments on time and in full, and we have ample liquidity within our portfolios to meet these obligations.’

Since October 2021, new laws in Australia require financial companies to make sure their products are a good fit for the people they’re being offered to.

ASIC has issued almost 100 interim stop orders across the industry under this framework.

The company has temporarily taken down its online investment platform and is unable to accept new investments.