Storm Financial Group

[Garpal Gumnut]

Frank and bunyip.

At the risk of getting hammered by both of you I will just add a few words.

You are both correct in part, but will never fully agree with each other.

Storm investors had an extraordinary perception of safety in their investments fed by an unusually high faith in their financial advice, in their banks and in their own financial plans. Hindsight is wonderful. Storm and the banks were very persuasive, even going to the loo was a gold plated experience.

Criminality and persuasion led to the destruction of their capital.

Some of them were warned by family, friends and other advisers that the advice they were given was less than robust. That if it sounds too good to be true, it probably is. Many could not see through the criminality, while others looking on could see the writing on the wall.

On the other hand the banks colluded with the criminality in their lending practices.

Greed is the only common thread through all of this, and I say that as a great believer in the concept that we are all greedy if we are truthful with ourselves.

(And Frank when I say greed, I do not mean it as a personal insult, it is common parlance in investing, as in "fear and greed", the great twin emotions driving markets.)

They will salvage some money from the banks, but the criminals will probably escape any real punishment.

As we speak the Financial Advice industry, aided and abetted by the government and industry funds, is gearing up through clever TV advertising to fleece another generation of retirees.

gg

 

[Frank Ainslie]

Frank and bunyip.

At the risk of getting hammered by both of you I will just add a few words.

You are both correct in part, but will never fully agree with each other.

Storm investors had an extraordinary perception of safety in their investments fed by an unusually high faith in their financial advice, in their banks and in their own financial plans. Hindsight is wonderful. Storm and the banks were very persuasive, even going to the loo was a gold plated experience.

Criminality and persuasion led to the destruction of their capital.

Some of them were warned by family, friends and other advisers that the advice they were given was less than robust. That if it sounds too good to be true, it probably is. Many could not see through the criminality, while others looking on could see the writing on the wall.

On the other hand the banks colluded with the criminality in their lending practices.

Greed is the only common thread through all of this, and I say that as a great believer in the concept that we are all greedy if we are truthful with ourselves.

(And Frank when I say greed, I do not mean it as a personal insult, it is common parlance in investing, as in "fear and greed", the great twin emotions driving markets.)

They will salvage some money from the banks, but the criminals will probably escape any real punishment.

As we speak the Financial Advice industry, aided and abetted by the government and industry funds, is gearing up through clever TV advertising to fleece another generation of retirees.

gg

Hi 99,

There's a "Smart" comment there somewhere!

No hammer this time!

If the truth be known, we in Storm took our eye off the ball because we, as you quite rightly pointed out, "had an extraordinary perception of safety in our investments fed by an unusually high faith in our financial advice, in the banks and in our own financial plans.

We made the mistake of leaving it entirely to Storm because that is what we were paying them to do - look after and protect our interests. They, Storm, told us they had the necessary safe-guards in place to protect our assets and we believed them. Indeed, we had no reason to believe otherwise. They lied about that as they did everything else.

Having said that, what Storm and the banks did to us has nothing to do with sound financial advice or prudent lending - completely the opposite in fact! Banks are governed by codes of banking practice that they cannot ignore. Until now they, the banks, have laid down the conditions, and we have been expected to follow on their terms. They have remained virtually untouchable because the cost of litigating against them is too much for your average Joe Blow in the street. However, we now have the numbers, so reducing our litigation costs (class actions) and our cases remain strong.

If unregistered managed investment schemes are proven we will recover much of what we have lost. On the other hand, if we can only get the the Banks for breach of contract, linked creditor, or breach of the TPA (unconscionable conduct and imprudent lending will figure somewhere in this as well) then any compensation will be somewhat reduced.

One thing I should add. The damage the Storm debacle has done to the financial sector as a whole and financial advisers in particular cannot be measured at this stage. You can bet your life though that the children of these Storm victims and their grandchildren will be told in no uncertain terms that "financial advisers cannot be trusted!" I, myself, am lecturing tonight on the subject of Storm Financial at the Lions Club here in Brisbane to a group of elderly people. I will be relaying the same message!

Certainly there are some genuine financial advisers out there, but the trouble is that you can't tell the 'shonks' from the genuine article any more. How can you when the 'shonks' don't wear a label on their hat saying, "SHONK!"

What's that old saying, "When you sow the wind you sometimes reap the whirlwind! I'll never use a financial adviser again, and if I have my way, no one else I know will either.

 

[The Falcon]

I'll never use a financial adviser again, and if I have my way, no one else I know will either.

I really feel for you stormers and sorry that you had to learn this lesson so late in the piece.

I had the good fortune of being fleeced by PIS/Timbercorp as a young fella, 24 years old and looking to sort out my financial future I took the advice that i paid for and did 80k or so....i thought i was doing the right thing.

I look on it now as a lesson, nobody will look after you but YOU......I'll never shoot the lights out, but i'll sleep at night managing my own portfolio of boring investments.

I wish you all the best.

 

[Julia]

Obvious questions, Julia, but let us not forget that those former Storm clients are hurting and hurting badly.

I suppose if it doesn't impact directly on yourself you tend to be a tad callous.

What is callous about asking why people who were already self funded retirees were not prepared to accept a conservative plan as outlined by Doobsy, instead of risking what was apparently a pretty reasonable level of financial independence by double gearing?

Surely to have become self funded retirees, people would have had to demonstrate some reasonable understanding of managing finances? So for me it beggars belief that such people would suddenly relinquish all interest in protecting their assets by telling any financial adviser "just invest this for me but don't actually explain to me what the strategy is and how I will be protected if markets turn down".

I simply do not get it.

nobody will look after you but YOU......I'll never shoot the lights out, but i'll sleep at night managing my own portfolio of boring investments.

Exactly.
If in the Storm case, the banks have done the wrong thing, then hopefully they will be obliged to offer appropriate compensation. In the meantime, I agree with Bunyip that to remove the focus from Storm Financial itself is not what any aggrieved investor should be doing. Hard to believe they didn't well and truly protect themselves whilst allowing their clients' investments to be demolished.

 

[bunyip]

If ASIC is now pursuing these banks on our behalf because it has now decided that these banks have a case to answer who are you or others on this forum, who are not abreast of all the facts, to say otherwise? They have the evidence! You don't! I therefore suggest that you suspend judgement until this plays out in Court. After you have viewed the evidence, that is! Only then can anyone be truly objective which seems somewhat lacking on this forum at the moment.

Frank – I’ve offered no opinion as to whether or not the banks are guilty of anything illegal.
On the contrary, I’ve said that if the banks can be proven guilty of anything illegal, then they should be brought to justice.

As for your comment ““And don’t tell me it couldn’t happen to you because it can happen to anyone!”

Well no actually Frank, it couldn’t happen to anyone, it can only happen to those who are not astute enough to do their research by thoroughly checking out the advice they’re given by a financial planner.
It can only happen to those who are gullible enough to be sucked in by a highly aggressive and risky strategy that’s presented to them as safe and conservative.
It can only happen to those who don’t heed the lessons taught by market crashes such as 1987.
It can only happen to those who are gullible enough to believe everything that salesmen tell them.
It can only happen to those who are naïve enough to think that a salesman is going to put your interests in front of his own.
It can only happen to those who don’t step in to over-ride their financial planner when he clearly demonstrates that he’s out of his depth by allowing the value of their investments to evaporate, as Storm did when they sat on their hands through 12 months of one of the worst markets crashes in history, and took absolutely no action to prevent their clients from being wiped out.

I and lots of others don’t use financial planners, Frank. We’ve put time and effort into getting ourselves reasonably knowledgeable in financial and investment matters so that we can handle our own investments.
Incidentally, the knowledge and education we gained is not at all complex and is freely available to anyone willing to learn it. Much of it is just good old common sense - a commodity that seems to have been in short supply in the case of the Storm debacle.

 

[bunyip]

Bunyip, old chap! You are still not getting it.

People did not invest in Storm because of the lure of big money! 75% of those that invested in Storm were self-funded retirees that had worked hard all their lives to insure that they would be financial self-sustaining when they grew old. They didn’t go to the Casino every night to gamble their hard earned money away as many do. We are talking now about conservative Australians that certainly didn’t have a gambling mentality.

Frank

Here’s a hypothetical situation for you to consider....

A couple retire with 500 grand in super and an unencumbered house worth 625 grand.
They sink their 500 grand of super money into a term deposit earning 5%, giving them a annual return of 25 grand. It’s not enough to comfortably live on, so they decide to rev things up a bit by withdrawing the money from the term deposit and investing it instead in the stock market where they hear that 10% returns are achievable.
Assuming they achieve their desired 10% return, they’ve now effectively doubled their yearly return to 50 grand simply by swapping their money over from a relatively safe investment to a more risky one.

Then someone recommends they have a yarn to the friendly sales team at Storm.
Storm says “Why have just 500 grand in the stock market – borrow 80% of the value of your house and sink that additional half a million into the market as well, then you can have a million in the market instead of just 500 grand. Double the investment – double the return.”

Then more advice from Storm.... “Use your million dollar share portfolio to raise a further loan of a million dollars (double gearing), then you’ll have twice as much money in the market for twice the return you’re currently getting.'

So let’s see what’s happened here.........our hypothetical couple started with a relatively safe investment generating a modest and relatively safe yearly return of 25 grand. Then by changing to a higher risk/higher return investment coupled with aggressive gearing, they managed to change their original 25 thousand dollar annual return into many times that figure.
But only while the stock market remained bullish. Once the bear market took hold, the same aggressive strategy that dramatically magnified their gains would now dramatically magnify their losses.
In fact the losses would mount up far more rapidly than the profits ever grew, simply because market crashes are always more dramatic than market rises.
This couple didn't realise that their strategy was aggressively chasing big returns – they had only wanted to provide themselves with a comfortable retirement.

Seems to me that the above scenario a pretty fair representation of what you Stormers did.

 

[doobsy]

What is callous about asking why people who were already self funded retirees were not prepared to accept a conservative plan as outlined by Doobsy, instead of risking what was apparently a pretty reasonable level of financial independence by double gearing?

Surely to have become self funded retirees, people would have had to demonstrate some reasonable understanding of managing finances? So for me it beggars belief that such people would suddenly relinquish all interest in protecting their assets by telling any financial adviser "just invest this for me but don't actually explain to me what the strategy is and how I will be protected if markets turn down".

I simply do not get it.




Exactly.
If in the Storm case, the banks have done the wrong thing, then hopefully they will be obliged to offer appropriate compensation. In the meantime, I agree with Bunyip that to remove the focus from Storm Financial itself is not what any aggrieved investor should be doing. Hard to believe they didn't well and truly protect themselves whilst allowing their clients' investments to be demolished.

Julia, we lost business and we missed out on business because we couldn't "promise" the returns or lifestyles that Storm promised. In retirement this is a pretty strong driver. We manage ex Storm clients that still to this day want to be super aggressive and have to work really hard to ensure they understand there are no free rides in life.

Frank is correct in the statement about trust in the adviser but there were plenty that were in the process becuase they saw it as a 'get rich quicker than everyone else' scheme. Those personalities will always lose money.

3 points to note. There were not 13,500 "stormified" investors. It was more like 3-4000. The rest were lucky, smaller, less important, less gullible clients that when their adviser either changed dealer to storm or sold the business to storm did not get all the way through the process yet. If one upside can be found it is that the crisis hit before Storm got that chance.

2nd point - The changes in the industry will provide overall benefits. Financial Planners need to get away from returns. We don't provide returns. We provide advice. We haven't lost clients and have continued to grow by ensuring people understand that the technical and strategic advice we give provides long term benefits. We cannot control markets but we can control exposure to markets.

3rd point - as a followon from point 2. Fees. In the example I gave that client would expect to pay between $3000-4000pa depending on the services provided. The storm client with $1.6M invested were asked for 7% or $112,000 upfront (Frank I shudder to think of what you handed over). It would take me at least 28 years to get the same revenue out of my client. This should have set off alarm bells. If Storm were all about the client then charging them on an annual basis should have meant that they had a vested interest in that client not just on bringing in a new client and therefore new fees. This structure meant that to generate more revenue you either needed new clients or needed to load up existing clients even higher. This was a major fault in the system that people seem to have ignored. This was NOTHING to do with the banks. The internal storm business model ground to a halt if new monies stopped. This is why CBA called in their loan. They could see the business revenue stream disappearing.

My client generates the same fee no matter what the level of investment as the fee is linked to the service I provide. I charge it via their funds as it is simpler than sending out an invoice however it is not market based.

People need advice. No different to needing accounting or legal advice but Fin Planners don't just deal with transactional advice and therefore can't charge accordingly. It is all about adding value and when I look at the Storm model even way back in the good times of 2005-6 I still don't believe that they added real long term value. They provided above market returns using gearing but even if we had avoided the drops we saw in 2008 and just went through the same muddle through low return environment we are in, the model would not have added any real value.


Maybe Frank can provide more insight into the very slick and professional sales "spin" that they used to make people feel the strategy was a safe one. We have all heard clients say they believed it was safe so I am interested in what was said that made them think that after being told their investment amount could become 4x as large.

 

[bunyip]

If the truth be known, we in Storm took our eye off the ball because we, as you quite rightly pointed out, "had an extraordinary perception of safety in our investments fed by an unusually high faith in our financial advice, in the banks and in our own financial plans.

We made the mistake of leaving it entirely to Storm because that is what we were paying them to do - look after and protect our interests. They, Storm, told us they had the necessary safe-guards in place to protect our assets and we believed them. Indeed, we had no reason to believe otherwise. They lied about that as they did everything else.
.

Frank

Frank, I’m pretty sure I recall you saying somewhere that Storm investors were astute. Also that they weren't gullible.

You took your eye off the ball, you placed blind trust in salespeople you barely knew, you failed to thoroughly check out the advice you were given, you got suckered into believing that an aggressive and highly risky strategy was safe and conservative, you paid exorbitant upfront fees.

No offence intended here Frank, but let's be realistic – your actions were not the actions of astute people - they sound more like the actions of gullible people who couldn’t be bothered to do a bit of simple research and use a bit of common sense.

Somewhere else I think you claimed that even savvy people couldn’t have seen what was coming.
Wrong, Frank – dead wrong.
Savvy people would have, and did, spot the pitfalls in Storm’s plan a mile away.
Savvy people learnt and remembered the lessons from 1987, and treated margin loans with the caution and respect that they deserve. That’s not to suggest that savvy people don’t use margin lending, just that they use it sensibly.
Believe me Frank, savvy people would never have been duped by Storm in the way that you were.

 

[McLovin]

I shudder at the thought of retirees borrowing to invest in equities.

 

[sailteam30]

Can you spot the odd one in the sequence -

When you have your house built you go to a registered builder
When your child needs education assistance you go to a registered teacher
When you need medical assistance you go to a registered doctor
When you need financial assistance you go to a registered financial planner

 

[Garpal Gumnut]

I guess it all comes down to trust, but the ads the financial houses are running now have those "feelgood boomer asshole actors", looking as if they'll get a leg over just from seeing a financial planner.

It will happen again, in three to five years time.

If the Gumnut Trust planned a listing called Cyclone Yasi Investments Inc., I bet you we would get a tsunami of suckers in for the plucking.

gg

 

[Gonzo1975]

Frank

but let's be realistic – your actions were not the actions of astute people - they sound more like the actions of gullible people who couldn’t be bothered to do a bit of simple research and use a bit of common sense.
.

From reading through your posts Bunyip, am I right to say that you will be less then impressed should the courts find in favor of ASIC and the lawyers representing these "gullible" people and the receive compensation.

I also wonder if, should this happen that down the line some of the victims might decide to seek compensation for the pain, suffering and for the loss of life they have suffered at the hands of the banks....

 

[Harleyquin]

I've just read all of your recent posts with interest. Trust in the financial planners and financial planning industry was what we were quilty of. The advisors, fully trained in financial planning, told us, those not trained in financial planning that this was a safe investment strategy for a number of reasons which I'm not going to go into here, except to say that they gave a very polished plausible explanation of why it was safe and we swallowed it hook line and sinker.

The point is, I think that we should have been able to trust. I feel sorry for those in the financial planning industry who fall into the 'good' advisor category but the 'baddies' will always make this a risky industry and like Frank I've decided that I'll never trust a financial planner again. I've taken your advice Julia.

I do believe now that we have to do our own research when it comes to investing, however, if the financial industry worked properly and all the advisors were trustworthy then we should be able to trust their investment skills.

Someone with investment qualifications is always going to be able 'to put it over' those of us who have no idea about investment strategies.

The three out of four potential clients of storm who walked away were perhaps lucky enough to realise that storm were not trustworthy, went for a second or third opinion or as many of you say, did their own research.

We would all prefer to be financially comfortable in retirement, and this isn't being greedy it's being practical, and the public is still being urged to seek financial advice but there are no real safe guards in place, despite what they may think of these new laws. Laws are only as good as the law enforcers, and in storms case they proved to be as useless as.

I'm with you gg it'll happen again and my bet is also in a couple of years time.

 

[bunyip]

From reading through your posts Bunyip, am I right to say that you will be less then impressed should the courts find in favor of ASIC and the lawyers representing these "gullible" people and the receive compensation.

I also wonder if, should this happen that down the line some of the victims might decide to seek compensation for the pain, suffering and for the loss of life they have suffered at the hands of the banks....

Gonzo mate

If the banks can be proven to have done anything illegal, then I'll be delighted to see them punished, including having to pay compensation.
I’d be even more delighted if Cassamatis and his henchmen were found guilty and thrown in the slammer for several years.

I am not, and never have been, an apologist for the banks. Frankly I don't like them - over the years I've paid them many thousands of dollars that I believe they had no right to.
To this day the bastards are still taking every opportunity they can to rip additional dollars out of me, such as hitting me with stiff charges if I inadvertently let my credit card go over the limit for a day or two.
I do think, however, that it's a bit rich for anyone to complain that 'The banks shouldn't have lent us so much money'.
Gees - if someone applies for a loan and they or their financial planner present figures to show how the loan will be serviced, and if the loan meets the banks security criteria, then of course they're going to lend the money.
Why the heck wouldn't they - lending is their business.

 

[Harleyquin]

There were storm clients who may have made big money during the best years however there were many of us who didn't. Its interesting that ex storm clients are now going to other advisors asking for a high risk option. When we went to storm we were given a high risk option, in fact we were given four options to choose from and I've copied that information below.

The question I ask is 'why were we given these options and then they ignored them as not all of us asked for a risky option.'

PERSONAL PROFILE

As a further aid in providing a recommendation we would like to know your thoughts about investments. Please tick and initial the box below that best represents your views on investments.

1. I am prepared to entertain speculative ventures of a risky nature and am prepared to lose my asset totally if necessary in an attempt to make high profits.

2. I am prepared to accept short to medium term volality and am also prepared to accept a level of real risk where some of my asset may be irrecoveraby lost.

3. I am prepared to accept volatility if in the medium to long term the investment growth is higher and teh risks over that term are minimal or eliminated.

4. I am not prepared to accept any level of volatility and realise that this selection will result in low growth and substantail exposure to inflation risk.

As you can see from our storm profiles we were able to choose our level of risk which I think is fair enough. There were certainly those who chose a high risk option but alternatively there were those who chose no risk at all.

This was where the trust issue came in. We trusted that we were being given our risk preference. It wasn't until storm crashed that we found out that everyone was given the same investment strategy despite filling in this risk option.

 

[zzz]

Can you spot the odd one in the sequence -

When you have your house built you go to a registered builder
When your child needs education assistance you go to a registered teacher
When you need medical assistance you go to a registered doctor
When you need financial assistance you go to a registered financial planner

Agreed...this has even more weight as Storm Financial was endorsed by the FPA.

 

[zzz]

Gonzo mate

If the banks can be proven to have done anything illegal, then I'll be delighted to see them punished, including having to pay compensation.
I’d be even more delighted if Cassamatis and his henchmen were found guilty and thrown in the slammer for several years.

I am not, and never have been, an apologist for the banks. Frankly I don't like them - over the years I've paid them many thousands of dollars that I believe they had no right to.
To this day the bastards are still taking every opportunity they can to rip additional dollars out of me, such as hitting me with stiff charges if I inadvertently let my credit card go over the limit for a day or two.
I do think, however, that it's a bit rich for anyone to complain that 'The banks shouldn't have lent us so much money'.
Gees - if someone applies for a loan and they or their financial planner present figures to show how the loan will be serviced, and if the loan meets the banks security criteria, then of course they're going to lend the money.
Why the heck wouldn't they - lending is their business.

Agreed....but fraud is illegal and a prudent banker should commit fraud. The truth will evolve and where the banks have done wrong they will be made accountable I am sure.

 

[Garpal Gumnut]

PERSONAL PROFILE

As a further aid in providing a recommendation we would like to know your thoughts about investments. Please tick and initial the box below that best represents your views on investments.

1. I am prepared to entertain speculative ventures of a risky nature and am prepared to lose my asset totally if necessary in an attempt to make high profits.

2. I am prepared to accept short to medium term volality and am also prepared to accept a level of real risk where some of my asset may be irrecoveraby lost.

3. I am prepared to accept volatility if in the medium to long term the investment growth is higher and teh risks over that term are minimal or eliminated.

4. I am not prepared to accept any level of volatility and realise that this selection will result in low growth and substantail exposure to inflation risk.

Hq,

Was that copied and pasted directly from a Storm document?

gg

 

[doobsy]

There were storm clients who may have made big money during the best years however there were many of us who didn't. Its interesting that ex storm clients are now going to other advisors asking for a high risk option. When we went to storm we were given a high risk option, in fact we were given four options to choose from and I've copied that information below.

The question I ask is 'why were we given these options and then they ignored them as not all of us asked for a risky option.'

PERSONAL PROFILE

As a further aid in providing a recommendation we would like to know your thoughts about investments. Please tick and initial the box below that best represents your views on investments.

1. I am prepared to entertain speculative ventures of a risky nature and am prepared to lose my asset totally if necessary in an attempt to make high profits.

2. I am prepared to accept short to medium term volality and am also prepared to accept a level of real risk where some of my asset may be irrecoveraby lost.

3. I am prepared to accept volatility if in the medium to long term the investment growth is higher and teh risks over that term are minimal or eliminated.

4. I am not prepared to accept any level of volatility and realise that this selection will result in low growth and substantail exposure to inflation risk.

As you can see from our storm profiles we were able to choose our level of risk which I think is fair enough. There were certainly those who chose a high risk option but alternatively there were those who chose no risk at all.

This was where the trust issue came in. We trusted that we were being given our risk preference. It wasn't until storm crashed that we found out that everyone was given the same investment strategy despite filling in this risk option.

HQ

My understanding of things is that some people are not willing to be patient and will always believe anyone who tells them there is a shortcut to wealth. They will be suckered by sharemarket programs, property spruikers, whoever is the flavour of the month.

Your risk tolerance questionnaire is considered a guide. Storm used the answers to gauge how much "education" you needed before you would swallow the BS. I don't doubt there are those who missed out but Storm clients were not the only ones that took losses in the crisis. Anyone who had income sources (investments or wages) to service the loans provided should not be bailed out. They took a punt, the lending was legit and they lost. Those without the income (retirees etc) should have their home debts extinguished but again they took too much risk with their savings and lost. There will be people who were DIY investors who picked the Babcock and Browns, Allco's, etc of the world who lost money, there are plenty who lost it all in tech stocks in 2002. None of them will get a bailout.

 

[doobsy]

There were storm clients who may have made big money during the best years however there were many of us who didn't. Its interesting that ex storm clients are now going to other advisors asking for a high risk option. When we went to storm we were given a high risk option, in fact we were given four options to choose from and I've copied that information below.

The question I ask is 'why were we given these options and then they ignored them as not all of us asked for a risky option.'

PERSONAL PROFILE

As a further aid in providing a recommendation we would like to know your thoughts about investments. Please tick and initial the box below that best represents your views on investments.

1. I am prepared to entertain speculative ventures of a risky nature and am prepared to lose my asset totally if necessary in an attempt to make high profits.

2. I am prepared to accept short to medium term volality and am also prepared to accept a level of real risk where some of my asset may be irrecoveraby lost.

3. I am prepared to accept volatility if in the medium to long term the investment growth is higher and teh risks over that term are minimal or eliminated.

4. I am not prepared to accept any level of volatility and realise that this selection will result in low growth and substantail exposure to inflation risk.

As you can see from our storm profiles we were able to choose our level of risk which I think is fair enough. There were certainly those who chose a high risk option but alternatively there were those who chose no risk at all.

This was where the trust issue came in. We trusted that we were being given our risk preference. It wasn't until storm crashed that we found out that everyone was given the same investment strategy despite filling in this risk option.

Oh, and if you picked the conservative or near conservative option, what the heck were you thinking and why didn't you pull them up when they presented a plan that involved 200-400% (of initial capital outside the home) exposure to a single asset class.