# Ireland's bust and the culpability of the Professions



## Dr.Debt (15 May 2013)

One issue that has bothered me for quite some time, is the role that our professions and "professionals" played in Ireland's boom and bust.

People who relied on professionals to safe guard their interests were badly let down by incompetent, negligent and greedy individuals at all levels and yet it seems that they have not received their fair shame of the blame in the fall out.

Surely, any Solicitor that was handling the affairs of an amateur BTL'r had a duty of care to their clients, to express caution and to flag the downside of reckless investments.

Similarly, Accountants who were often employed to give advice on large financial decisions appear to have failed in many cases and were apparently oblivious to the basic cornerstones of good financial advice.

I'm aware of one particular case where a family with four investment properties was offered 680,000 (now worth 220,000) for one of their properties in 2007.The family responded to the offer by saying that they needed to seek the advice of their Accountant. Within one week they replied that the Accountant's advice was to retain the property "for their pension" and based on the fact that interest paid was fully allowable against rental income for tax purposes, "they would be mad to sell it" That family is now in London queuing up at the bankruptcy court.

Now, I'm not going to brand all professionals with the same brush. I'm sure there were plenty of good competent and diligent practitioners who attempted to guide clients in the right direction and presumably good sound advice was not always heeded. There were also the rogue Professionals and these should be hounded out and called to account.

I think that anybody that now finds themselves in a bad situation should consider whether the Professionals that they employed to help them with big decisions in the boom time did actually give them appropriate advice.


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## T McGibney (15 May 2013)

Dr.Debt said:


> I'm aware of one particular case where a family with four investment properties was offered 680,000 (now worth 220,000) for one of their properties in 2007.The family responded to the offer by saying that they needed to seek the advice of their Accountant. Within one week they replied that the Accountant's advice was to retain the property "for their pension" and based on the fact that interest paid was fully allowable against rental income for tax purposes, "they would be mad to sell it" That family is now in London queuing up at the bankruptcy court.



You joined AAM in December 2012 so I presume you won't be familiar with the thrust of most such AAM discussions in 2007?


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## Dr.Debt (15 May 2013)

Hi Tommy. I have no idea what discussions took place on AAM in 2007, but I'm not talking about AAM, I'm talking about Ireland's boom and bust.


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## T McGibney (15 May 2013)

Dr.Debt said:


> Hi Tommy. I have no idea what discussions took place on AAM in 2007, but I'm not talking about AAM, I'm talking about Ireland's boom and bust.



My point is that in 2007 AAM and similar forums were full of people asking similar questions. There was a general consensus (with which I and some others disagreed) that people should maximise their borrowings and their tax reliefs. 

Its a bit ridiculous to call now for certain advisors to be "hounded out and called to account" simply because they agreed with the consensus of the time.

That said, any accountant who falls into the trap of making decisions for their clients (as opposed to presenting respective benefits and drawbacks for the clients and letting the clients make their own decisions) needs their head examined as they will be setting themselves up for a blame-game whenever a decision turns out in retrospect to have been a poor one.


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## Dr.Debt (15 May 2013)

I certainly would not be engaging with a professional on the basis "that  he agreed with the consensus of the time" That response would not stand up to any scrutiny. We employ professionals because  of their qualifications and expertise and with an understanding that  they will impart appropriate and suitable advice.

Any  professional worth their salt should have been well aware of the  following in the middle of the boom and should have been advising their  clients suitably.

1) Investments should always be diversified among the different asset classes.
Amateur  investors buying solely from one asset class (ie residential property)  should have been actively disuaded from that course of action.

2)  The professionals should have been taking note of the level of gearing  that individuals were signing up for and advised them accordingly.

3) The professionals should have been aware that the economic parameters prevailing in the economy at that time were completely abnormal. In this I include
money supply, interest rates, employment levels, building activity, house finishes and  so forth. To a professional it should have been clear that we were  treading un chartered waters and the potential downside should have been  identified.

Its not ridiculous at all to go back and review the  advice that was imparted by professional advisors during the boom. In fact I would urge people to consider carefully if the professionals they employed during the boom gave appropriate advice at that time. The ones who were doing the job correctly have nothing to worry about


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## Brendan Burgess (15 May 2013)

Dr.Debt said:


> Surely, any Solicitor that was handling the affairs of an amateur BTL'r had a duty of care to their clients, to express caution and to flag the downside of reckless investments.



Solicitors are not financial advisors. They do not get engaged in "money supply, interest rates, employment levels, building activity,  house finishes and  so forth. To a professional it should have been  clear that we were  treading un chartered waters and the potential  downside should have been  identified."

If you purchased a property and your title is faulty, you may have a cause for complaint against a solicitor.  It is not the solicitor's fault if you paid too much for it.



> Similarly, Accountants who were often employed to give advice on large  financial decisions appear to have failed in many cases and were  apparently oblivious to the basic cornerstones of good financial advice.


Accountants are not usually consulted on buying the family home. In fact, I would say that they were rarely consulted on buying residential investment properties either.  Accountants are not economists and I don't think that the following would be their area either: "money supply, interest rates, employment levels, building activity,  house finishes and  so forth. To a professional it should have been  clear that we were  treading un chartered waters and the potential  downside should have been  identified."


Most people  and especially people who invest in property, consider themselves to be experts on property. They rarely seek advice from anyone. 

If you go back and look at the house price discussion on askaboutmoney and other sites during the boom, there were different views on the direction of property prices. Some felt that a crash was imminent. Others felt that there would be a soft landing. Others felt that house prices would continue to rise.


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## Dr.Debt (15 May 2013)

Brendan

Both Lawyers and Accountants were and are widely approached for this type of advice all of the time.

If we take your argument and agree that Solicitors and Accountants are NOT 
competent Financial Advisors in this respect, then they should not take this type of work on.

If they do advise in this area (and I know they do) then they need to take professional responsibility for any advice imparted


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## T McGibney (15 May 2013)

Dr.Debt said:


> If we take your argument and agree that Solicitors and Accountants are NOT
> competent Financial Advisors in this respect, then they should not take this type of work on.
> 
> If they do advise in this area (and I know they do) then they need to  take professional responsibility for any advice imparted



I can't speak for solicitors but accountants who provide financial investment advice are very tightly regulated in relation to the advice they impart. Most sole or SME practice accountants either don't offer investment advice at all or confine themselves to discussing generic investment issues (eg the merits or otherwise of tax-motivated pension investments) with clients.


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## Brendan Burgess (15 May 2013)

Dr.Debt said:


> Brendan
> 
> Both Lawyers and Accountants were and are widely approached for this type of advice all of the time.
> 
> ...



I have not heard of people approaching solicitors for investment advice. Nor have I heard of solicitors offering it.  But maybe they do. I doubt if they are authorised to do so.

I raised this issue a year or two ago with accountants in practice. None of them gave investment advice. Most recommended QFAs.  Some wouldn't even recommend a QFA and told their clients to find their own advisors. 

I don't think a practising chartered accountant is allowed give investment advice unless they register specially for it with the Institute of Chartered Accountants. If they give this advice, of course they should be responsible for it. 

I acted as a professional witness in a case last year where a practising accountant had give terrible investment advice.  His defence was that he had not given advice.  The judge thought otherwise and awarded the client their full losses and costs.


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## Gerry Canning (15 May 2013)

T McGibney said:


> I can't speak for solicitors but accountants who provide financial investment advice are very tightly regulated in relation to the advice they impart. Most sole or SME practice accountants either don't offer investment advice at all or confine themselves to discussing generic investment issues (eg the merits or otherwise of tax-motivated pension investments) with clients.


...................................................................................
Also to Dr Debt;
We were all (tightly) Regulated by a dyfunctional Central Bank and incompetent Bank Type professionals. In short it was tight regulation of NON effective regulation. Aided by willing recipients of the Irish success story who @times took generic discussions as advice.
This is in NO way to excuse the many so called Professions who forgot their responsibilities in the (fluff).


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## AlbacoreA (15 May 2013)

There doesn't seem to be any accountability in Ireland. Either for professionals, tradesmen, or even Govt. Take Priory hall as a prime example. You've more rights and protection on a toaster than property worth fortunes. 

In 2007 a lot of people where still locked in their own bubble. I know people more financially astute than myself, who bought property very late in the bubble, despite having spent the previous 10 yrs pointing out the oncoming debt crisis to me. No one wanted to be left standing when the musical chairs stopped.


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## Jim2007 (15 May 2013)

Dr.Debt said:


> One issue that has bothered me for quite some time, is the role that our professions and "professionals" played in Ireland's boom and bust.



We're all smarter in hindsight, but what you have to deal with is what was known and what people believed at the time, not what we know now.

For instance lets say someone was interested in buying a house in a certain area in 2005 and all the properties in that area were selling for say 300K or there about.  The individual gets a valuation on his dream house and the insightful agent says "look I think there is a bad recession in store and accordingly I'm valuing the property at 120K".  What do you think will be the reaction?  Do you really think that buyer will thank the agent and walk away... of course not!  The agent will be classed as an idiot and the buyer will find himself a new agent that clearly understands the market and values the property at say 310K!

That is the reality of bubbles and expecting anyone to be so insightful and forceful that they can turn the tide is simply unrealistic.  It has been happening for hundreds of years and will happen again with absolute certainty!

Have a google for:

The Mississippi Scheme of 1717 to 1720
The South-Sea Bubble of 1711
Tulip Mania of 1559

Just to mention a few  bubbles or better yet have a read of the book "Extraordinary Popular Delusions and The Madness of Crowds".  The book was published in 1841, but it is as relevant today as when it was published back them.


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## Importer (15 May 2013)

@ Jim, I'm not sure that any of us is any "smarter" in hindsight and that's not a valid explanation for being less smart or less professional in a boom.I would have to agree with Dr.Debt that the Professionals do not appear to have taken their fair share of the flack for the very poor, reckless and incompetent advice that many of them gave out during that time.


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## Setanta12 (15 May 2013)

Importer said:


> .I would have to agree with Dr.Debt that the Professionals do not appear to have taken their fair share of the flack for the very poor, reckless and incompetent advice that many of them gave out during that time.



I would imagine that Professionals are hurting more than most, as they lived through the bubble too  !

Incidentally, in most professions, insolvency - never mind bankruptcy - is not an option.


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## Bronte (16 May 2013)

Jim2007 said:


> We're all smarter in hindsight, but what you have to deal with is what was known and what people believed at the time, not what we know now.
> 
> .


 
The way you view it is the same for me (and you're abroad too I think). Must have a read of that book you recommended.

Could anyone here who is blaming the professionals give concrete examples of actual ordinary people who purchased a home based on what an accountant or a solicitor said or recommended. 

It is not the place of a those two professions to give financial advice, surely it was the borrower who decided what house they wanted and decided how much they wanted to spend, or decided to ask the bank for the maximum they could and borrowed the deposit, and falsified the P60's, aided and abetted by many 'brokers', with the full knownledge of the bankers, whose job was to shovel out as many massive loans as possible. Is that not what happened. 

I do not put brokers or bankers down as professionals, not the same as accountants or solicitors anyway.

DrDebt gave one example of where he outlines that an accountants 'bad' advice led to a family losing everything, but we actually do not have all the facts of that case.  In any case who on earth, with experience of buying many properties, asks an accountant whether it's a good idea to sell or not.  If you're an investor in property, then you should know what you are doing without asking an accountant, it's not an accountants area of expertise?  You may ask the accountant his opinion, you may ask him how it's beneficial from a tax planning point of view, but you ultimately make the decision to sell.


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## Jim2007 (16 May 2013)

Importer said:


> @ Jim, I'm not sure that any of us is any "smarter" in hindsight and that's not a valid explanation for being less smart or less professional in a boom.I would have to agree with Dr.Debt that the Professionals do not appear to have taken their fair share of the flack for the very poor, reckless and incompetent advice that many of them gave out during that time.



If someone has committed a crime then the mechanisms exist to deal with that and they should be prosecuted to the full extend of the law, but if not then they are just as entitled to their good name as anyone else!

Even today, after all that has happened we are still getting regular from people wanting to borrow 4 and 5 times their income over a 35 year period!!!  As a comparison, the Ireland I knew of 25 years ago and the Switzerland of today considers anything beyond 2 or 3 times ones salary over a 20 year period to be high risk and best avoided.

Then we have other people who are to borrow money to buy investment properties, despite the fact that they are ignoring to of the basic rules of investing - never borrow to invest and diversify your investments to reduce risk.

Some people will never learn...


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## Importer (16 May 2013)

@Jim - The giving of bad advice is not a crime. Neither is it an acceptable standard, from a Professional, charging high fees. We are talking about Civil matters here (in the main), not Criminal matters.
Of course it could be a criminal matter if there was any element of fraud or embezzlement or larceny involved.

In the main I interpret this thread to be about negligence, incompetence and ill founded advice.
Any individual who feels that he/she has received bad or incompetent advice from a professional is entitled to seek a civil remedy.


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## Jim2007 (16 May 2013)

Bronte said:


> The way you view it is the same for me (and you're abroad too I think). Must have a read of that book you recommended.



The first 100 pages or so should give you plenty of food for thought



Bronte said:


> In any case who on earth, with experience of buying many properties, asks an accountant whether it's a good idea to sell or not.  If you're an investor in property, then you should know what you are doing without asking an accountant, it's not an accountants area of expertise?  You may ask the accountant his opinion, you may ask him how it's beneficial from a tax planning point of view, but you ultimately make the decision to sell.



Another rule for the investors - do not invest in something you don't understand!


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## mf1 (16 May 2013)

Dr.Debt said:


> Brendan
> 
> Both Lawyers and Accountants were and are widely approached for this type of advice all of the time.
> 
> ...



Here's the problem. The distinction between offering advice and making a decision for a client. 

I'm a domestic, conveyancing, Probate, family law, legal practitioner. I do not make my client's decisions for them - they have to do that themselves. I will offer advice, I will advise them  to go to speak to financial advisers but I will not make my client's decisions for them. Many clients would like you to make their decisions for them? Why? So, when it all goes tots up, they can say, hey you advised me...........you must take the blame. 

It is not a uniquely Irish problem, the inability to accept responsibility for one's own actions. 

mf


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## Dr.Debt (16 May 2013)

Yes thats's the main point

Solicitors and Accountant's should not be, and should not have been, giving advice on areas outside their areas of expertise, regardless of whether the client was seeking that advice or not.

I agree with you that the client must make their own  decision but if that decision is based on advice received by the Professional, then the advice received needs to be open to scrutiny and possible compensation
later, especially if the advice was relied upon and transpires to be incompetent or negligent or reckless.


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## TRS30 (16 May 2013)

Did the auditors of banks, especially IBRC, conduct themselves in a fit and proper professional manner is their annual  external audit of these institutions? 

On the face of it I would say they didn't.


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## Jim2007 (16 May 2013)

TRS30 said:


> Did the auditors of banks, especially IBRC, conduct themselves in a fit and proper professional manner is their annual  external audit of these institutions?
> 
> On the face of it I would say they didn't.



Well as far as I remember on that one the professional bodies have been asked to hold off on examining the conduct of those professionals until the other investigations have been completed.

But that said it should be pointed out that the auditors duty is to the shareholders and not to the general public or the borrowers.


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## Sunny (16 May 2013)

Jim2007 said:


> Well as far as I remember on that one the professional bodies have been asked to hold off on examining the conduct of those professionals until the other investigations have been completed.
> 
> But that said it should be pointed out that the auditors duty is to the shareholders and not to the general public or the borrowers.



The same shareholders in Anglo, BOI, Irish Nationwide, PTSB and AIB that lost everything? Not blaming accountants but anyone who suggests the big 4 firms do not share some of the blame or have proven to be as useless as the banks themselves is living in dreamworld.  

I won't even start talking about accounting standards and the power of accountancy bodies.


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## Jim2007 (16 May 2013)

Sunny said:


> The same shareholders in Anglo, BOI, Irish Nationwide, PTSB and AIB that lost everything? Not blaming accountants but anyone who suggests the big 4 firms do not share some of the blame or have proven to be as useless as the banks themselves is living in dreamworld.
> 
> I won't even start talking about accounting standards and the power of accountancy bodies.



I did not express an opinion one way or the other!  I simply pointed out that the only people who might hope to be compensated in anyway from a failure by the auditors would be the shareholders!  They are the ones that appoint and pay the auditors and they are the ones who get to rely on the auditors work.


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## Purple (17 May 2013)

Hindsight required knowledge, foresight required wisdom.
We can and should reasonably expect accountants and lawyers, through their training and work, to have the former but wisdom cannot be trained.


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## Bronte (17 May 2013)

Dr.Debt said:


> I agree with you that the client must make their own decision but if that decision is based on advice received by the Professional, then the advice received needs to be open to scrutiny and possible compensation
> later, especially if the advice was relied upon and transpires to be incompetent or negligent or reckless.


 
Well you're kinda changing what you said in the first post. And other than your vague 'accountant' gave bad advice to client who was 'experienced' investor, no one on here has an actual concrete example of ordinary people buying BTL's on a solicitors or accountants advice.

In any case I don't see why they would be giving such advice.  

If you move on from that to people who have a lot of money and a lot of investments.  Anyone with more than one BTL.  Well they have experience, they can seek a solicitors opinion and an accountants, but they should at the end of the day make their own decisions.  

We see a current court case, someone with lots of money and no clue about finance and hey presto loses the lot.  Whose fault is that?


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## Bronte (17 May 2013)

Sunny said:


> Not blaming accountants but anyone who suggests the big 4 firms do not share some of the blame or have proven to be as useless as the banks themselves is living in dreamworld.
> 
> .


 
I put the big 4 auditors in a different category to ordinary accountants and solicitors.  OP was about ordinary run of the mill transactions. 

My opinion of audits is that they are a work of fiction in general.  And worded accordingly and no accountant ever will go down for getting one of those wrong.  The big 4 are so smart since Enron they have divided up their legal title so that if one folds it does not bring down the rest.


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## Dr.Debt (17 May 2013)

Dear Bronte
I would need to correct you when you say that I'm "kinda changing what you said" I'm not kinda changing anything I said.


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## TRS30 (19 May 2013)

Jim2007 said:


> I did not express an opinion one way or the other!  I simply pointed out that the only people who might hope to be compensated in anyway from a failure by the auditors would be the shareholders!  They are the ones that appoint and pay the auditors and they are the ones who get to rely on the auditors work.



While the shareholders might be the ones looking for compensation, the tax payer in general is the one left paying.


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## Luternau (19 May 2013)

TRS30 said:


> While the shareholders might be the ones looking for compensation, the tax payer in general is the one left paying.



But the point is that the auditors had no duty to the public and no matter how culpable they may be for the failures of banks, the public has no recourse to them.


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## TRS30 (20 May 2013)

Luternau said:


> But the point is that the auditors had no duty to the public and no matter how culpable they may be for the failures of banks, the public has no recourse to them.



As professionals they are bound by a due of care in the work that they do. Society as a whole can only have confidence in any industry based on the conduct of it participants and those who regulate them.


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## Negotiator (20 May 2013)

Little is ever mentioned about the commercial estate agents who were over-inflating the valuations of commercial (and residential) properties. For example, a commercial estate agent acting on behalf of a landlord was setting a headline rent on a commercial lease at say €100k per year but abating it back to €80k as a side agreement. All this was being done as a complete charade to inflate the value of their property so they could borrow more money against that asset. This was common practice during the boom years and it's a disgrace it was ever allowed to happen.

If you think this only effected a small % of the population who were renting these premises you're wrong, because this in turn fed into the rest of the economy as these same landlords were able to borrow to build blocks of residential units etc based on false valuations of their own assets......and on and on it went until............CRASH!!

Many of these same agents are carrying out a lot of work for NAMA and banks since the crash and doing nicely out of the mess that they played a big part in........MADNESS!


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## Luternau (20 May 2013)

TRS30 said:


> As professionals they are bound by a due of care in the work that they do. Society as a whole can only have confidence in any industry based on the conduct of it participants and those who regulate them.



An auditors duty is to those that they work for. In the case of the banks, that was the shareholders.

I agree society is based on honourable conduct etc but bank auditors have no direct duty to society.


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## TRS30 (20 May 2013)

Luternau said:


> An auditors duty is to those that they work for. In the case of the banks, that was the shareholders.
> 
> I agree society is based on honourable conduct etc but bank auditors have no direct duty to society.



Agree.

Since so many bank shareholders have lost so much, including large institutional investors, I'm surprise no case has been taken against any auditors. Especially around the Anglo/ Irish Permanent carry on.

My point about society was more a ramble about ethics and morals that seem to be lacking in some professions.


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## Bronte (21 May 2013)

Dr.Debt said:


> Dear Bronte
> I would need to correct you when you say that I'm "kinda changing what you said" I'm not kinda changing anything I said.


 
Can you give one concrete example of an accountant or solicitor causing someone to lose money? You've said they were widely asked for advice on financial decisions. And that that advice was incorrect and ergo they should be sued?

If what you say is true then how come 'everybody' isn't suing accountants and solicitors for the mess they find themselves in?

I think you'll find the truth is that people themselves made the wrong decisions, falsified the P60's, with brokers in particular up to all sorts of tricks and banks turning a blind eye in an effort to shovel out as much mortgages as possible, with targets for the bank staff and bonuses flying everywhere, and a regulator asleep on the job and government in on the whole thing.

In addition I believe that a whole load of accountants and solicitors believed in the whole pyramid scheme themselves and are up to their necks in debt.


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## cremeegg (25 May 2013)

In reading about the bust I have always been astonished at the number of large investors or developers who borrowed money through limited liability companies and then signed personal guarantees for the borrowings.

Any accountant or solicitor who failed to point out the idiocy of this wasnt worth their fee.


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