Storm Financial Group

[Glen48]

To days news some accountant has gone to Jail for 8 yrs out in 2 for a mini whopper ponzi scheme he fleeced his victims out of 800k not a bad return for doing 2 yrs.
Wonder how this one will pan out maybe another Skase ???

 

[awg]

its almost academic now

but reputable FP have you answer a questionare that profiles your risk profile.

I was of the belief it was mandatory.

From that, your profile can be deduced, ie conservative,neutral, assertive aggressive etc.

Then they place you in a diversified range of cash, fixed interest, bonds, equity, property, to suit.

leveraged equity would be reserved for the highest risk profile only!

I still have my original plan, even though am no longer with FP.

I repeat all investors should have copies of their original documentation

You may wish to check with FPA about this

 

[Temjin]

I am not sure what you mean exactly, I guess in initial consultations by asking financial positions.Is that what you mean?. risk assements however should be done regularly.. how can it possibly be an acceptable risk for an advisor to go about taking out a 600k mortgage on a 700k home for 2 retirees?

No, a risk assessment, or rather a risk profile is to look at the current life stage the client is in and his/her sensitive to risk. It's definitely mandatory and subject to audits.

A rule of thumb (based on study materials) is younger people with few debt will be able to take on more risk than those who are in retirement already. Of course, this rule may not necessary apply if the client's personal risk adversity is too low to accept the standard level of risk that he/she should take. i.e. he is young, can take a bigger risk, but refuse to do so because he prefer things to be safe, thus, take a balanced portfolio instead of full 100% share on margin. Or of course, it can go the other way. The retiree is asking to take on more risk against the advisor's advices.

To your last question, it's not. They completely violate every rules in the financial planner's book when it comes to risk assessment. Storm is only in it to maximum the amount of money one can put into their branded investment products. Or probably in denial that a black swan event will never happen to them.

 

[cuttlefish]

No, a risk assessment, or rather a risk profile is to look at the current life stage the client is in and his/her sensitive to risk. It's definitely mandatory and subject to audits.

A rule of thumb (based on study materials) is younger people with few debt will be able to take on more risk than those who are in retirement already. Of course, this rule may not necessary apply if the client's personal risk adversity is too low to accept the standard level of risk that he/she should take. i.e. he is young, can take a bigger risk, but refuse to do so because he prefer things to be safe, thus, take a balanced portfolio instead of full 100% share on margin. Or of course, it can go the other way. The retiree is asking to take on more risk against the advisor's advices.

This is a good explanation. In my view what the financial planning industry needs to do is make these risk assessments mandatory and have standardised 'risk levels' (e.g. minimum risk, low risk, medium risk, high risk, kamikaze) with an accepted, industry wide description of what each risk level means. They then should get both the adviser and client to sign the risk assessment with the adviser incidating that they acknowledge the clients desired risk level and the client acknowledging they've accepted that risk level. It should be a standard form in large bold font - a bit like some of the documents used in real estate - and include an independant witness signing it.

That way regardless of any 'rhetoric' they spout about everything being safe - when the cr*p hits the fan the client will have a document to fall back on. Alternately if the client comes in hungry to bet it all on red but then turns around and complains about the risks they were put into the adviser also has a document to fall back on.

 

[ShareGuy]

The Townsville bulletins reporting that administrators have shutdown the company with 115 staff sacked. Anyone want to employ an FP?

 

[Smiley]

A lot of us saw problems with Storm in 2007 and tried to get some $ out and questioned but they did just smiled and said trust us and have something to eat and a coffee. Challenger returned us to the adviser who stalled.

What no one has mentioned on this forum is that clients were in trouble long before the market got down to 3,500 or lower. Most clients were taken out when the market was at 4,200+ . So there goes their argument about this being the worst case scenario in history. Anyone know how much the market had dropped when it was at 4,200?

 

[donteventryit]

Anyone know how much the market had dropped when it was at 4,200?

Yes, but I don't think that's going to answer your actual question.

From market high of approx. 6,800 points down to 4,200 points = 38% fall. However, Storm wasn't invested into the ASX 200, per se. They manipulated the indices such that it was overweighted to different sectors. That's why the different investment options they used were:

- Australian Industrials
- Australian Resources
- Australian Shares (ASX 200)

(Here's the PDS from their website - it's kind of functioning http://www.stormfinancial.com.au/pdf/Storm%20Financial%20Index%20Sharemarket%20Funds_Sep%2008.pdf http://www.stormfinancial.com.au/pdf/Notice%20of%20Amendment%20-%20CFS%20PDS%20-%20Sep%2008.pdf but probably not for much longer)

This was also their downfall back around the Tech boom, when they created a Tech index and advised clients to jump into there. Suffice to say, that didn't really work out.

Anyway, that's why Storm had trouble working out where clients margin loan positions were - most people had different investment "mixes" away from the ASX 200, so when the market fell 2%, their portfolio could have fallen 1% or 3%. Which is why they relied on info from the margin lenders ..........

Which is why they could never tell you what your current position was. They would just give you a print out and let you work it out.

They could have spent some money on a flash software system for their clients, but I suppose they don't provide the best bang for your (marketing) buck - like a flash headquarters does.

 

[-Bevo-]

Now that Storm is no more, what happens to the class action any ideas anyone?

 

[Glue]

Does anyone have any idea who to contact now storm is really dead in the water. We have only lost fees, a lot of tho, in the last month. What is the best way to learn about investing without an fp. We are beginners.

 

[QuiteContrary]

This is a good explanation. In my view what the financial planning industry needs to do is make these risk assessments mandatory and have standardised 'risk levels' (e.g. minimum risk, low risk, medium risk, high risk, kamikaze) with an accepted, industry wide description of what each risk level means. They then should get both the adviser and client to sign the risk assessment with the adviser incidating that they acknowledge the clients desired risk level and the client acknowledging they've accepted that risk level. It should be a standard form in large bold font - a bit like some of the documents used in real estate - and include an independant witness signing it.

The regulations already exist to cover this with the exception of the witness and, sorry for the length of post, but hopefully this example may shed some light.

Sadly the industry already has too much regulation. Don’t believe me?

I am a qualified Financial Adviser (please hold the boos until the end) – In the 3rd week of September 2007 I moved my entire superannuation balance to cash (from a highly geared 100% equity position) and unwound my non-super gearing.

The best I could do for my retired clients was to advise them to hold 2 years income in cash and a back up of 2 years income in a capital stable fund (approximately 30% exposure to growth assets)within their account based (allocated) pensions, which I did (mind you not all of them took that advice).

For those still working all I could do was re-visit their risk profile and recommend the minimum exposure to growth assets that their risk profile suggested was appropriate.

If I had recommended that they moved 100% of their investments to cash I would have: 1) failed my next compliance audit; 2) faced the very real risk of being dismissed by my dealer group; 3) faced being reported to ASIC and 4) potentially been banned by ASIC from giving advice.

The reason behind the 3 points above is that according to ASIC I must have a reasonable basis for my advice. To do this I must have a fully completed (and current) “fact find” including a Risk Profile questionnaire for each client. If, in that questionnaire you are determined to be a “balanced” investor I have to recommend a portfolio that fits within my dealer groups definition of “balanced”.

Please don’t get me wrong, I am not (and will not) defending the Storm model (I have clients who fled in terror from the Storm proposal to borrow heavily just prior to retirement) and I feel for every Storm client who has been caught in this mess (I understand that around 20% of the total Storm client base was ‘Stormified”) and I detest underhanded, deceptive and misleading behaviour regardless of the industry in which it occurs, but the financial advice industry is already one of the most heavily regulated industries we have and no amount of regulation will ever prevent the “sharpies” from finding a new angle.

Hopefully the solicitors now circling will find a way to recoup some money for the most affected.

 

[-Bevo-]

A lot of us saw problems with Storm in 2007 and tried to get some $ out and questioned but they did just smiled and said trust us and have something to eat and a coffee. Challenger returned us to the adviser who stalled.

What no one has mentioned on this forum is that clients were in trouble long before the market got down to 3,500 or lower. Most clients were taken out when the market was at 4,200+ . So there goes their argument about this being the worst case scenario in history. Anyone know how much the market had dropped when it was at 4,200?

Good point Smiley, I first became aware of trouble with Storm last year when I had my tax done in October, got talking about the sharemarket with my accountant he mentioned then that people were suffering big losses because of margin calls he went on to mention Storm I'm guessing it was talk around the town between accountants, Storm had said they factored in the worse declines in the sharemarket but this could not be true as there were falls equal to or worse in the past at the time people were getting into trouble.

 

[Gerkin]

Does anyone have any idea who to contact now storm is really dead in the water. We have only lost fees, a lot of tho, in the last month. What is the best way to learn about investing without an fp. We are beginners.

Sorry to be rude or blunt, but there are people who have lost there homes + more, I dont think you will get fees back.

 

[Gerkin]

There has been some speculation that Storm's business model wasn't that flash to begin with, did anyone see the collapse of Storm coming?

Yes,
Ask any stockbroker or decent financial planner(one who actually understands investment markets) and you will get a "Told you so response"
From reading there prospectus when they tried to list, there business model was flawed, p/e ratio too high, forecast eps too low, it was simply a cash out by directors (which the institutional mkt saw), now the directors have two parts of f all.
They had zero imstitutional support when they tried to list, no brokers wanted a piece of them, Im just glad the didnt list as there clients would have gotten the dummy shares that would be worth zero today adding to the losses.

 

[cuttlefish]

The regulations already exist to cover this with the exception of the witness and, sorry for the length of post, but hopefully this example may shed some light.

Sadly the industry already has too much regulation. Don’t believe me?

I am a qualified Financial Adviser (please hold the boos until the end) – In the 3rd week of September 2007 I moved my entire superannuation balance to cash (from a highly geared 100% equity position) and unwound my non-super gearing.

The best I could do for my retired clients was to advise them to hold 2 years income in cash and a back up of 2 years income in a capital stable fund (approximately 30% exposure to growth assets)within their account based (allocated) pensions, which I did (mind you not all of them took that advice).

For those still working all I could do was re-visit their risk profile and recommend the minimum exposure to growth assets that their risk profile suggested was appropriate.

If I had recommended that they moved 100% of their investments to cash I would have: 1) failed my next compliance audit; 2) faced the very real risk of being dismissed by my dealer group; 3) faced being reported to ASIC and 4) potentially been banned by ASIC from giving advice.

The reason behind the 3 points above is that according to ASIC I must have a reasonable basis for my advice. To do this I must have a fully completed (and current) “fact find” including a Risk Profile questionnaire for each client. If, in that questionnaire you are determined to be a “balanced” investor I have to recommend a portfolio that fits within my dealer groups definition of “balanced”.

Please don’t get me wrong, I am not (and will not) defending the Storm model (I have clients who fled in terror from the Storm proposal to borrow heavily just prior to retirement) and I feel for every Storm client who has been caught in this mess (I understand that around 20% of the total Storm client base was ‘Stormified”) and I detest underhanded, deceptive and misleading behaviour regardless of the industry in which it occurs, but the financial advice industry is already one of the most heavily regulated industries we have and no amount of regulation will ever prevent the “sharpies” from finding a new angle.

Hopefully the solicitors now circling will find a way to recoup some money for the most affected.

Cheers for the insight.

Interestingly now that you mention it I was actually quite scared of putting everything into cash at the commencement of 2008 - even though it was a logical time to go to cash from a market cycle perspective - because I did not trust that the banks were not going to be hit by serious problems with the risk of associated bank runs. (this was before the US government started bailing out institutions and banks left right and centre, and before the Australian government decided to guarantee funds in banks).

Had I heard of a financial adviser at that time recommending people sell everything and putting it all in cash I probably would have considered this irresponsible as well.

You've made your point well - I can see that having this sort of bureaucracy can actually severely hamper a good financial advisers ability to help their clients make adjustments based on market conditions.

One of the biggest issues for the Storm clients was probably not so much that they had their money in the wrong place - but that they were put into so much leverage. (they had their money in the wrong place as well, but the leverage amplified the losses to the levels that cause them to wipe out completely).

Does the financial planning industry have specific guidelines/regulations in relation to the amount of leverage that clients should take on?

 

[Jayan]

Does anyone have any idea who to contact now storm is really dead in the water. We have only lost fees, a lot of tho, in the last month. What is the best way to learn about investing without an fp. We are beginners.

There was a news on our local channel tonight (Qld) that the administrators are setting up something on their website for investors help. Also said letters are going out in 2/3 days.

 

[Jifromoz]

I spoke to one of the people at Slater & Gordon today. They are still looking at helping people affected by Storm. We may hear next week which way they intend to proceed.

 

[cuttlefish]

I spoke to one of the people at Slater & Gordon today. They are still looking at helping people affected by Storm. We may hear next week which way they intend to proceed.

Who would they sue though? It doesn't sound likely that there would be any money left in Storm after secured creditors are paid out.

I guess they'd have to try to sue someone for professional indemnity (who though - the company? the individuals?) and hope that the indemnity insurance covered it. I guess the indemnity insurance should still stand if it was paid up at the time that the professional misconduct occurred - even if the company doesn't exist any more.

 

[Jifromoz]

Who would they sue though? It doesn't sound likely that there would be any money left in Storm after secured creditors are paid out.

I guess they'd have to try to sue someone for professional indemnity (who though - the company? the individuals?) and hope that the indemnity insurance covered it. I guess the indemnity insurance should still stand if it was paid up at the time that the professional misconduct occurred - even if the company doesn't exist any more.

Cuttlefish, If I was the Lawyer (Or affected customer) I would also be inclined to look closely at the Banks that gave pensioners large equity against their houses. I would hazard a guess that they were Low Doc Loans but "As a prudent banker should" would have thought the lenderwould have to seriously question the age of the borrowers. I have already approached my In-laws lender and they received the documentation that I requested. I will be looking at it with interest tomorrow. Another point is that in the siituation I am involved in I know that the Bank in question did not see their applicants in the flesh and received all documentation direct from Storm.

I have definitely not finished my work or investigations. Lucky I have another 5 days of my holiday.

ps

If anyone wants to have an idea on what I have done in the last four weeks please send me a private message. I am more than happy to share it with those affected to help.

Cheers

 

[Gerkin]

Who would they sue though? It doesn't sound likely that there would be any money left in Storm after secured creditors are paid out.

I guess they'd have to try to sue someone for professional indemnity (who though - the company? the individuals?) and hope that the indemnity insurance covered it. I guess the indemnity insurance should still stand if it was paid up at the time that the professional misconduct occurred - even if the company doesn't exist any more.

The standard industry PI policies have protection in them that will allow clients to sue after a company is not around or the adviser out of the industry, i have seen this in othe rprofessional practises.

 

[Julia]

Cuttlefish, If I was the Lawyer (Or affected customer) I would also be inclined to look closely at the Banks that gave pensioners large equity against their houses.

I think a Storm client earlier in this thread said Storm recorded the value of their property as considerably in excess of the true market value.
Perhaps they also altered client age on the form of application for the loan.
Perhaps this is why clients don't appear to have copies of all the initial documentation.