Australian (ASX) Stock Market Forum

Storm Financial Group

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Solly said:
"ASIC defends role in Storm Financial collapse"

"AUSTRALIA'S corporate watchdog has defended its role in dealing with the collapse of advisory firm Storm Financial."

More by Paul Osborne from AAP on NEWS.com.au here;

http://www.news.com.au/story/0,27574,25947140-29277,00.html
Click to expand...

I am still having an issue trying to work out the complex interconnections between all the parties in this saga. I cannot understand how the CBA & Storm came to such a bitter falling out. I would have thought that in business you do all you can to ensure any problems you are having are kept behind closed doors and you negotiate a mutually beneficial resolution. And you do everythiing possible to enure your brand is unsoiled in the public arena.
To an outsider the whole debacle looks very sloppy.
Maybe everbody needed Big Max brought in earlier. :)
 
donteventryit said:
Serious question here abagnale, but why Big Max?
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I don't know Big Max from a bar of soap but I'm impressed with his directness in his answers and his manner. Maybe if some heads were knocked together earlier a better quicker resolution may have eventuated. Just IMHO.
 
abagnale said:
I am still having an issue trying to work out the complex interconnections between all the parties in this saga. I cannot understand how the CBA & Storm came to such a bitter falling out. I would have thought that in business you do all you can to ensure any problems you are having are kept behind closed doors and you negotiate a mutually beneficial resolution. And you do everythiing possible to enure your brand is unsoiled in the public arena.
To an outsider the whole debacle looks very sloppy.
Maybe everbody needed Big Max brought in earlier. :)
Click to expand...

How did Storm and CBA have such a bitter falling out?
Simple.....Storm believed their cosy relationship with the banks, particularly with CBA, would ensure favourable treatment for Storm clients when the market ran into trouble.
My understanding is that Cassamatis tried to broker a deal with CBA to go easy on Storm clients, carry them through until market conditions improved, cut them a bit of slack by not selling them down.
The banks, understandably, were not having a bar of it - they had very large sums of money riding on these Storm clients, and the plunging market put those funds at risk of catastrophic loss if they didn't act quickly.
From the banks perspective it was a case of 'To hell with cosy relationships - the plunging market means our money lent to Storm clients is at significant risk and we have to act quickly if we're to avoid disaster'.

The simple fact is this....stock market investment is extremely risky unless you have risk management measures in place. Lending for stocks carries particular risks for banks. Why? - because companies sometimes go broke and the stock price falls to zero. Once a company goes out of business it ceases to exist. Therefore its stocks also cease to exist.

Compare this to real estate.....no matter how low house prices fall, a house never goes broke or ceases to exist. Inflation and ever-tightening land supplies ensure that house and land prices rise over time.
Building costs rise almost constantly....it'd be impossible to find a builder who would quote you the same price per square metre today as he was quoting 10 years ago.
It'd be close to impossible to find a block of land that isn't worth more today than it was worth 5 or 10 years ago.
For these reasons, real estate is correctly regarded as a far safer investment than stocks.
Knowing this, banks take a very different attitude between lending for real estate and lending for stock market investment.
Banks address the additional risk of lending for stocks by putting in place safety nets such as margin calls.
If you're a real estate investor with borrowed funds, the banks are not going to sell you up if the value of your real estate assets comes under a bit of pressure. Why would they?...they have a mortgage over your assets and they know that long term, real estate values will rise.
Different story with margin loans for stocks...the stock market starts to seriously slide, banks won't hesitate to make margin calls, or sell people down if margin calls are not met. Can we blame them? They know that stocks can decline to zero and they could lose their entire loan if they don't take swift action to address the problem.

I know, I know....many Storm clients say they were sold down without ever receiving a margin call. My guess is that a margin call was made, but it just wasn't passed on to you because of a communication breakdown somewhere along the line. The banks say it was Storm's responsibility to keep clients advised of margin calls, since Storm was acting on behalf of clients. Storm says it was the banks responsibility to advise clients when they were in margin call.
Hopefully the truth will come out in coming months as the inquiry gets underway.
 
abagnale said:
I am still having an issue trying to work out the complex interconnections between all the parties in this saga. I cannot understand how the CBA & Storm came to such a bitter falling out. I would have thought that in business you do all you can to ensure any problems you are having are kept behind closed doors and you negotiate a mutually beneficial resolution. And you do everythiing possible to enure your brand is unsoiled in the public arena.
To an outsider the whole debacle looks very sloppy.
Maybe everbody needed Big Max brought in earlier. :)
Click to expand...

The best (?) analogy I can draw is a once loving relationship that ends in a bitter divorce. Ego, blame, arrogance takes over and reason gets left behind to the extent they start fighting over the children, the furniture and the gold fish.

When it gets to that stage it's very hard re-establish logical discussion.

In the CBA/Storm divorce case though neither party apparently wanted custody.
 
Alan Kohler's commentary in Business Spectator regarding ASIC's new stance on commission-based financial advice makes good reading imo

http://www.businessspectator.com.au/bs.nsf/Article/Ban-pd20090819-V2SMZ?OpenDocument&src=mp

I think the idea of charging a fixed fee, payable over a set period, would lead to more "ordinary people" having faith in the value of advice, which would likely also lead to more people being prepared to pay for a financial plan in the long run. Given that the advice would not be commission-based, and therefore have no bearing on the reward to the adviser, it would be far more likely to include strategies that encompassed property investment, bond or fixed-interest holdings as well as share/managed fund portfolios, and would likely be far more balanced in favour of the investor than the advice handed out by the majority of advisers these days - which is naturally skewed towards products that return a commission.

Now if only someone could convince the govt that the cost of having a financial plan prepared could be tax deductable straight up.
 
How did Storm and CBA have such a bitter falling out?
Simple.....Storm believed their cosy relationship with the banks, particularly with CBA, would ensure favourable treatment for Storm clients when the market ran into trouble
Click to expand...
.

Don't forget, bunyip, that the CBA also called in the commercial loans on Storm the business. Usually, that only happens when a bank is not confident that the business is viable, ie will not be able to pay the interest on the loan let alone repaying the loan itself. And once a commercial loan has been handed over to the credit department look out because those boys and girls don't even love their mothers let alone a business proprietor whose business has gone sour.
 
DocK said:
Alan Kohler's commentary in Business Spectator regarding ASIC's new stance on commission-based financial advice makes good reading imo

http://www.businessspectator.com.au/bs.nsf/Article/Ban-pd20090819-V2SMZ?OpenDocument&src=mp

I think the idea of charging a fixed fee, payable over a set period, would lead to more "ordinary people" having faith in the value of advice, which would likely also lead to more people being prepared to pay for a financial plan in the long run. Given that the advice would not be commission-based, and therefore have no bearing on the reward to the adviser, it would be far more likely to include strategies that encompassed property investment, bond or fixed-interest holdings as well as share/managed fund portfolios, and would likely be far more balanced in favour of the investor than the advice handed out by the majority of advisers these days - which is naturally skewed towards products that return a commission.

Now if only someone could convince the govt that the cost of having a financial plan prepared could be tax deductable straight up.
Click to expand...

DocK, asset allocation is something that you can do yourself without the assistance of a financial planner. You just sit down and think "Of my funds how comfortable am I with 25% (or whatever) in international shares/bonds, 60% local shares/bonds/property (apart from your own home), 15% cash/term deposits." It is not about what a planner thinks, they are not you so they do not really know how or what you think. It is about how comfortable you are with any investment.

I'd rather planners acted in the form of mentors. People to bounce an idea off before taking action but having absolutely nothing to do with the actual investing process. Only invest in your name over your own signature at your address and with your own broker.

The other role I'd would like to see for planners is advice on tax effective investing but again no role in implementing those investments and estate planning.

Then you could throw SoAs, FSR Act and all that other crap where it belongs - down the toilet.
 
Judd said:
I'd rather planners acted in the form of mentors. People to bounce an idea off before taking action but having absolutely nothing to do with the actual investing process. Only invest in your name over your own signature at your address and with your own broker.

The other role I'd would like to see for planners is advice on tax effective investing but again no role in implementing those investments and estate planning.

Then you could throw SoAs, FSR Act and all that other crap where it belongs - down the toilet.
Click to expand...

Judd,

This sounds like what an accountant did before this FSR Act was enacted
 
And that's all well and good in theory - but what some of you don't seem able to grasp is that not every Australian in need of financial guidance is capable of managing their own affairs - for various reasons, but lack of knowledge would be the main one. How do you bounce ideas off a mentor if you simply don't have any ideas to start with? I know it shouldbe possible for all of us to run our own investments - but some folk simply lack the intellect and/or ability/confidence/whatever. I've nothing but respect for those of you who have spent years handling your own financial decisions - but not everyone has that ability. Some people would definitey be better off if never allowed to make their own decisions. Part of paying for a plan would involve being educated about the myriad choices that exist. Sometimes it pays to have someone point out to you what it is that you don't know. Young people's financial direction could be altered drastically by sitting down and discussing with a qualified planner what their goals and financial aspirations are, and learnng the options available to acheive them. In an ideal situation parents/schools provide basic info re budgeting, saving, etc - but we all know this doesn't always happen in the real world.
 
Judd said:
.

Don't forget, bunyip, that the CBA also called in the commercial loans on Storm the business. Usually, that only happens when a bank is not confident that the business is viable, ie will not be able to pay the interest on the loan let alone repaying the loan itself. And once a commercial loan has been handed over to the credit department look out because those boys and girls don't even love their mothers let alone a business proprietor whose business has gone sour.
Click to expand...

Yeh, the CBA lowered the boom on the Cassamatis outfit when they saw that Storm's cash cow had died.
It must have been a sinking feeling for Cassamatis to realise that very few new clients were coming through the door and very few existing clients were taking out additional loans, therefore Storm no longer had the opportunity of milking 7% from millions of dollars worth of new investment each month.
No wonder the unscrupulous bastards grabbed 2 million dollars before the doors slammed closed on them.
 
DocK said:
And that's all well and good in theory - but what some of you don't seem able to grasp is that not every Australian in need of financial guidance is capable of managing their own affairs - for various reasons, but lack of knowledge would be the main one. How do you bounce ideas off a mentor if you simply don't have any ideas to start with?
Click to expand...

You start by being interested and reading books, scouring the internet, joining the Australian Shareholders Association or Australian Investors Association and asking questions, such as on this site, until your bore other people totally sh!tless.


DocK said:
I know it shouldbe possible for all of us to run our own investments - but some folk simply lack the intellect and/or ability/confidence/whatever. I've nothing but respect for those of you who have spent years handling your own financial decisions - but not everyone has that ability.
Click to expand...

Yes they do. Anyone with average intellect can manage their own financial affairs. It is just having the confidence to do so but see my comment above. However, they also need to be prepared to lose money sometimes (but not in the manner of Storm clients)


DocK said:
Some people would definitey be better off if never allowed to make their own decisions.
Click to expand...

Just like this lady:

http://www.timesonline.co.uk/tol/money/investment/article6796737.ece

And this is the jurisdiction whose financial advisory model ASIC suggests be adopted in this country. There are always and always will be rogues. When will politicians and people in this great country get it through their thick heads that no amount of legislation and education will stop crooks who will prey on people enticing them to do stupid things.

You do not need a qualification in financial planning to realise that a complex and risky stock market investment is probably not appropriate for a woman in her eighties. Having no financial qualifications, however, did not stop a salesman from St James’s Place, the wealth manager, from persuading Benitia Middleton, 80, to move £216,000, the majority of her life savings, from cash into a risky investment bond.

By the time Mrs Middleton’s children found out about, and sold, the investment, she had made a real-terms loss of several thousand pounds. Had Mrs Middleton left her £216,000 in cash, she would have been about £70,000 better off. The St James’s Place salesman, meanwhile, pocketed about £12,000 commission on the deal.
Click to expand...

DocK said:
Part of paying for a plan would involve being educated about the myriad choices that exist. Sometimes it pays to have someone point out to you what it is that you don't know.
Click to expand...

Only if you wish to complicate things. Do you really wish to know about puts, calls, collars, CFDs, alpha, beta, vega? If you don't , then don't and leave them alone. I am more than happy to leave them alone and muddle along in my own simple way as I live my simple life. And bugger the rest.

DocK said:
Young people's financial direction could be altered drastically by sitting down and discussing with a qualified planner what their goals and financial aspirations are, and learnng the options available to acheive them. In an ideal situation parents/schools provide basic info re budgeting, saving, etc - but we all know this doesn't always happen in the real world.
Click to expand...

Generally, they take no notice of us now, as we took no notice of our parents, so why should they take notice about finances? Sitting down and talking or thinking things through does not have the immediacy that quite a number young people crave and want. And taking away the ability to make mistakes takes away the element of leaning that not everything is safe.

As for introducing it to schools, pleeeeease no more loading of the already overloaded curriculum. Half the blighters cannot even spell let alone write and as for the level of numeracy, forget it. Universities are having to do remedial courses to get some of their students to be able to write fluently, so it would be better if these worthy institutions of higher learning concentrated on the basics, knwn as the three R's. Oh, the horror of it all.

Anyway, where are these wonderful financially literate teachers to come from? It is distinctly possible given their demographics they they are in debt to their collective eyeballs and would not even know how to balance an account let alone the ins and outs of a general ledger.
 
Judd said:
You start by being interested and reading books, scouring the internet, joining the Australian Shareholders Association or Australian Investors Association and asking questions, such as on this site, until your bore other people totally sh!tless.
Click to expand...

I'm sorry to have bored you. Criticised for not educating myself, and now criticised for doing so???? Won't bore you further after this post.



Yes they do. Anyone with average intellect can manage their own financial affairs. It is just having the confidence to do so but see my comment above. However, they also need to be prepared to lose money sometimes (but not in the manner of Storm clients)
Click to expand...

Not everyone has average intellect, and some need help. Should those who struggle to understand all things financial make no effort to secure their futures?



Only if you wish to complicate things. Do you really wish to know about puts, calls, collars, CFDs, alpha, beta, vega? If you don't , then don't and leave them alone. I am more than happy to leave them alone and muddle along in my own simple way as I live my simple life. And bugger the rest.
Click to expand...

Yes, I want to know anything that can help me be more effective, efficient, and hopefully profitable. I want to know if the way I'm muddling along is the best way for me, and my tax situation etc.


Generally, they take no notice of us now, as we took no notice of our parents, so why should they take notice about finances? Sitting down and talking or thinking things through does not have the immediacy that quite a number young people crave and want. And taking away the ability to make mistakes takes away the element of leaning that not everything is safe.

As for introducing it to schools, pleeeeease no more loading of the already overloaded curriculum. Half the blighters cannot even spell let alone write and as for the level of numeracy, forget it. Universities are having to do remedial courses to get some of their students to be able to write fluently, so it would be better if these worthy institutions of higher learning concentrated on the basics, knwn as the three R's. Oh, the horror of it all.

Anyway, where are these wonderful financially literate teachers to come from? It is distinctly possible given their demographics they they are in debt to their collective eyeballs and would not even know how to balance an account let alone the ins and outs of a general ledger.
Click to expand...

You have quite a dim view of our country's young people, haven't you? Yes, literacy and numeracy skills are an issue with some, but I believe there are also a lot of intelligent kids in their 20's who don't necessarily want an instant fix, but could use a few tips to help them into their first homes, businesses or whatever their dreams are.
 
Suit yourself DocK. I express my views and you express yours, as is your right. If you don't like my views, so be it. I'll survive that trauma.
 

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