Term deposit or tropical island – Can you tell the difference?

Mostly we talk about hydraulics, but the other day he rifled through his overalls and pulled out an ad he’d ripped from a newspaper. Then he handed it to me with his grease-stained hands.

The ad was from an outfit called “IPO Wealth”, whose tagline is: “Are you tired of earning less than 3 per cent p.a. on your idle money?”

“They’re paying 5.3 per cent for a 12-month term deposit,” my mechanic mate said.

(It turns out he’s an old cocky who has the proceeds from the sale of his farm invested in low-earning term deposits, which is enough to qualify him as a “high net worth investor” suitable to invest with IPO Wealth.)

I studied the ad, which had a picture of a Great Dane towering over a hairless chihuahua.

“What do you think?” he asked.

“I think you’re the chihuahua!” I laughed.

He did not.

“But it’s a term deposit … so it’s safe, right?” he said tentatively.

“Well, that depends,” I replied. “Where will they invest your money?”

He shrugged his shoulders. I shrugged my shoulders.

Then he snatched the paper back from me, stuffed it in his overalls and turned back to the tractor.

Awkward.

So later that night I did some research.

It’s clear that IPO Wealth is marketing its product as an alternative to term deposits.

“The fund is considered by our investors as an attractive alternative to term-based investments, investment property and stock market investments”, their website says.

And it’s clear they’ve spent a shedload of money on advertising, including creating infomercials with appealing retired women talking about their investments with IPO Wealth.

And it’s also clear it’s working: IPO Wealth says it has taken $100 million in deposits in the past two years.

So where is all that money invested?

Well, it’s hard to tell. The fund lends depositors’ money on to a related party, a privately held investment group called Mayfair 101.

Mayfair 101 says its policy is “not to publish a list of its entire investment holdings as many of these assets are private companies”.

Bugger that!

So I got on the phone and spoke to them directly, and they confirmed that Mayfair 101 has spent $31.5 million buying Dunk Island (an island south of Cairns that was wiped out by Cyclone Yasi in 2011) and has also invested in various cryptocurrency-related companies, a food app, and a host of other investments across 11 countries.

My old mechanic mate clearly didn’t understand that this was not a traditional bank term deposit (which would be covered by the government’s bank deposit guarantee if something goes wrong).

Yet I totally understand his frustration: with interest rates at all-time lows, it’s bloody hard for retirees trying to live off their interest.

My worry is that income-poor retirees could be sold a pup:

They may believe they’ve got a Great Dane guarding their money … only to find out later it’s a hairless little chihuahua.

Tread Your Own Path!

by Scott Pape on October 29, 2019