Storm Financial Group

[bunyip]

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

Nobody is suggesting there was anything wrong with consulting a registered financial planner.

The problem was that the strategy offered by Storm wasn’t properly investigated and researched by the clients.
Research should have involved much more than simply talking to existing Storm clients and finding out they were doing well in the midst of a raging bull market. Naturally they were going to tell you how great Storm’s strategy was!
Any mug can make money in a bull market.

 

[sailteam30]

My point is you did spot the odd one out - and the other "dodgy registered builders/teachers/doctors" are serving time.

Also Manny would be occupying a lonely corner store somewhere in the burbs if he did not have the backing of some large banks who were in for their "slice of the action".

 

[bunyip]

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.

No risk at all?

None of those four options offers ‘no risk’ – not even No. 4

I’d be extremely surprised to find any financial planning firm using the words ‘no risk’....not even a bunch of sharks like Storm.

Whatever made you think there is such a thing as a risk-free investment? I can assure you there is not.
And whatever made you think that the strategy proposed by Storm, i.e. borrowing heavily for stock market investment, was ‘no risk’, or even low risk? How could you possibly think such a thing?

 

[Solly]

"Was Ignite' the ignition Storm needed? (Part 2)

“Apart from holding and or getting the income from the "Storm" trademarks, Ignite also developed and retained ownership of a computer program called "Phormula", which was used by Storm in connection with its business. Although Ignite was tasked with the development of "Phormula" it seems that Ignite did not initially have the financial resources to pay the development costs. An analysis of the financial records of Storm shows that Storm progressively advanced the required funds to Ignite by way of an unsecured and interest free loan. As at 30 June 2007 Ignite owed Storm $3.44 million. “

Wait for it! Now we have the biggest joke of all:


.....

In the Worrells case, Manny was asked the following:

“Liquidator's Barrister: Do you now accept that Ignite, instead of losing money by having the jet, would have been better to use its money to develop capabilities in the Phormula software which would have enabled advisers easily to identify clients who were in, or getting close to, margin call territory?--

E Cassimatis: Privilege. No.”

Unfortunately, Manny, it was not a privilege knowing you!

Frank Ainslie – 11th October 2011

Hi Frank

I note that "IGNITE FINANCIAL SYSTEMS & RESEARCH PTY LTD" is still a registered company.

http://www2.search.asic.gov.au/cgi-bin/gns030c?acn=091_752_920&juris=9&hdtext=ACN&srchsrc=1

I wonder what its purpose is ?

 

[bunyip]

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.

Frank

I have a question that I hope you'll find time to answer.
Last time I asked this question I was abused by one of our members who, to his credit, has since apologized for his outburst.

The 75% of Stormers you mention who were self-funded retirees and were already 'financially self-sustaining'......I'm wondering why they weren't happy to just continue living the good life, letting their passive income fund the reasonably comfortable lifestyle that's the privilege of self-funded retirees?
Why would they risk that by getting involved in heavy borrowings to fund stock market investment?
And in particular, why would those who were actually quite wealthy feel any need to chase any further income, particularly if it meant mortgaging their previously unencumbered home?

I realise you can't speak for everyone, Frank, but maybe you can tell us why you personally took this step, given that you already had significant wealth from the sale of your shopping center?

And another thing I'm wondering is why you, who were obviously an astute operator in your private business life, suddenly became anything but astute when Storm ran their highly risky and aggressive strategy past you.

You were an adult at the time of the spectacular market crash in October 1987 – do you have no recollection of that event? Do you not recall seeing it on TV or in the papers, do you not remember the stories of New York stockbrokers committing suicide when both they and their clients were wiped out overnight by margin calls?

Did it not occur to you that it could all happen again – that our market could slump 25% in a single day and 50% in a few weeks, as it did in 1987?
How could you and so many others fail to consider these things when Storm was advising you to sink huge amounts of borrowed money into the stock market?
How could you possibly think it was a safe or conservative or low risk strategy?

Frank, I’m not trying to upset you – you seem like a decent and genuine bloke to me – but crikey, I’m still trying to get my head around why you Stormers did what you did, particularly those of you who were self-funded retirees who had no need to get involved in further investments and further risk.
I’m still shaking my head in amazement that you didn't hear the alarm bells ringing loud and clear.

 

[bunyip]

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.


We would all prefer to be financially comfortable in retirement, and this isn't being greedy it's being practical,

Harleyquin, I agree that you should have been able to trust.
But gee whiz - shonks have been common throughout the history of the human race. In todays commercial world the shonks are more plentiful than ever before. Every industry has its shonky operators - to trust any sort of advice involving money is risky in the extreme.....unless you thoroughly research the advice you're being given.
But anyway, I guess I'm only telling you what you've already learnt from your unfortunate experience with Storm.

I agree with you that preference for a comfortable retirement is practical rather than greedy.
However, the greed factor comes in when extremely aggressive borrowing and investment strategies are used to massively boost retirement income.
Unfortunately there have been many decent people burnt because they didn't realise that the strategies they implemented on Storm’s advice were greedy and reckless and extremely risky.

 

[SJG1974]

This really is, in my opinion, a very worthwhile debate and has been quite insightful to read through it all.

Doobsy, it is good to have someone from "the darkside" posting. I have used a financial adviser for quite a while and cannot speak highly enough of him. I don't rely on him to generate me investment returns...I feel I am able to do this myself. What I value is the strategic work that he does to help manage my tax position, structure my assets so they are protected in the best possible way and ensure that I am taking advantage of opportunties that changes in legislation and the like offer.

He is not an investment adviser, but rather a financial planner who is helping me plan for my future. I think investment adviser/salespeople and financial planners get grouped together, and they do not perform the same role...far from it.

I think the financial planning industry has copped a bad rap not only on these boards but in general due to the actions of a few. There are a lot of good advisers out there who make a real difference to people's lives...IN A GOOD WAY.

In looking at Storm, putting my client hat on, alarm bells would have rung loud if:

- I was told that borrowing against my home and then borrowing more was not a high risk strategy
- that because I am investing in index funds they are low risk
- that I could expect returns of 10% per annum
- that I would be charged 7% fees to simply put in place an investment strategy, and be charged that fee on the geared up amount of investment, and be charged the fee everytime I ramped up my borrowings
- that I was told to take all my money out of the tax haven that is superannuation and invest it all in shares outside of super
- that my investment portfolio was not diversified between different asset classes rather than 100% in shares
- that I could get a loan for hundreds of thousands of dollars from the bank without having a regular income other than investment dividends

etc.

I am firmly in the Bunyip camp...with so many alarm bells ringing, I cannot for the life of me understand how so many people fell for this, particularly people who were already well off and living comfortably?

 

[Harleyquin]

I haven't scanned the storm profile gg but I have copied it word for word from our documentation. I could scan it but it's going to say exactly the same, the only thing is, the original has our signature on it so I prefer not to.

I know that this documentation doesn't say 'no risk' and I agree I don't think any planner would ever offer no risk but it doesn't say 'we only offer high risk' either does it. Between the information we gave in our paperwork and the talks we had with our planner they were made very aware of what we were looking for and gave us the assurances that we asked for. To turn around and ignore what we said we were looking for and to tell us that it was a safe strategy is nothing short of lying in my book.

There are those of you on this forum who say 'how can you mortgage your home didn't you realise how dangerous this was' Of course we thought it was dangerous but we had a trained financial planner, again ASIC and FPA backed, saying it wasn't and telling us why it wasn't. I'm not going to go into details here but the smooth speil sounded very logical and we trusted that they knew what they were doing.

As far as all the arguments go, if you can't trust an ASIC and FPA backed planner to do the right thing by their clients then there is something seriously flawed. Storm will no doubt be proved to be as shonky as we all know they've been. My point with the banks is 'being at the top of the financial food chain they knew exactly what storm were up to ' and therefore are as quilty as storm, in fact, I'm happy to say that they are more quilty than storm. Just because a planner is prepared to step outside the law doesn't excuse the banking sector in any way form offering financial support and making it a reality.

I know that banks lend money but they have rules and those rules have been broken. You only have to read the banking code of conduct to realise just how many of their own rules have not been adhered to.

With all the monitoring and audits which are supposed to occur in the financial industry why wasn't this scam picked up long before it blew up as it did. Obviously from reading earlier posts on this forum, other planners and accountants were aware of storms dangerous strategy. One said on this forum that, basically, you can't report one of your own. If they aren't doing the industry and their clients any favours, why can't they report them to the right authorities.

Also if other planners and accountants knew that storms policy was dodgy this proves my point, even more so, and that is, that the banks all knew very well what storm were doing and financed it. Again I make my point, the banks financial backing brought storms high risk ideas to reality and therefore are directly responsible for this debacle.

I expect the financial sector, and that includes the banking sector, in this country to be more accountable than they have proved to be in this whole sorry saga. OK we've been burnt, we'll learn to live with that, but the perpetrators of this crime are not above the law. As I said in a previous post, 'a criminal is a criminal and needs to be convicted for his crimes' In the storm case it's 'criminals' and many of them.

 

[Harleyquin]

' I was told that borrowing against my home and then borrowing more was not a high risk strategy'

We were told that we could only borrow up to 60 percent of our homes value and it would be quite safe. We were not told that we would be borrowing more than that. In fact our advisor told us it wasn't safe to borrow more than 60 percent. I don't know what other storm advisors told their clients.

- that because I am investing in index funds they are low risk

I did look into index funds and the information I was given was they are safer than ordinary shares.

- that I could expect returns of 10% per annum[/I

We weren't told this, in fact, we were told not to expect a return for the first 5 - 7 years.

- that I would be charged 7% fees to simply put in place an investment strategy, and be charged that fee on the geared up amount of investment, and be charged the fee everytime I ramped up my borrowings

We weren't told this either, we were given a set figure and told that this was all we would ever have to pay, unless we chose to put in more money, and the advisor went to great pains to point out that 'as there were no annual fees etc that over the lifetime of the investment that it actually worked out cheaper and he quoted figures to support this'


- that I was told to take all my money out of the tax haven that is superannuation and invest it all in shares outside of super

We weren't told this and still have our super. I know there are others who did put in their super but we were not told to put our super in, in fact we were told to leave it in superannuation.

- that my investment portfolio was not diversified between different asset classes rather than 100% in shares

On the contrary we were told that this strategy was very diversified, over three different areas of investment, which basically was - banks, mining and technology, and in the top 200 companies.


- that I could get a loan for hundreds of thousands of dollars from the bank without having a regular income other than investment dividends

We were never told this either. We were told that they would apply to the bank for a loan , they took all our income particulars etc, and we would have to wait and see if it was approved. This took several weeks.

etc.

I don't know where you and others like you get this information. Also every advisor may have offered something slightly different, I can only tell you our experience.

I'm not saying for one moment that lies weren't told but the information that you've given in your post is not correct in our case.

 

[Judd]

Harleyquin,

Thank you for providing your experience in this matter. From my aspect, as I am not and was not involved with Storm, it is difficult, if not impossible, to comprehend the situation.

Maybe some of us are simply fortunate to have a mind set that causes warning bells to ring loudly. For example, the one and only time I met with a financial planner, he suggested that we get a line of credit against our fully paid off home to invest. He was told in no uncertain terms that after sweating blood to pay of the mortgage we be damned if we would put it back in the clutches of a bank just to make a few dollars. Others would see no problem with doing what he suggested.

The whole Storm saga beggars belief. Other financial planning firms would have corporate loans from financial institutions and I assume a number of the clients would have or had margin loans, yet they did not collapse, so why Storm? I recall reading in the testimony to the Parliamentary Inquiry, one FP firm advised that during that period, it was receiving data from the CBA and progressively managing its clients margin loans. I assume other FP firms would have done the same for their clients. Yet apparently overall Storm did Sweet FA. Why? I cannot get my head around it. It doesn't make sense to me.

I can understand why people are now asking if the Storm investment model was so dodgy why didn't the regulators or FP industry do something about it. However, at the time, and even now, it was not unlawful. As one person said to me, "We are busy enough with our own clients. If people wish to go with a high risk strategy like Storm, they were free to choose." I honestly don't think that attitude will change.

Anyway, thank you again for posting of your experience.

All the best.

 

[Garpal Gumnut]

I haven't scanned the storm profile gg but I have copied it word for word from our documentation. I could scan it but it's going to say exactly the same, the only thing is, the original has our signature on it so I prefer not to.

I know that this documentation doesn't say 'no risk' and I agree I don't think any planner would ever offer no risk but it doesn't say 'we only offer high risk' either does it. Between the information we gave in our paperwork and the talks we had with our planner they were made very aware of what we were looking for and gave us the assurances that we asked for. To turn around and ignore what we said we were looking for and to tell us that it was a safe strategy is nothing short of lying in my book.

Thanks Hq,

The reason I asked was that there were misspellings in the quoted " Personal Profile" , and if this were in the original document, and there were others, it may provide you with some legal arguments in your quest for justice.

Storm had bunnies working as advisors, so they may have had bunnies in the English and spelling proof reading department for documentation as well.

It may have been your transcription. Best of luck for the future.

gg

 

[AubreyThompson]

I have heard few things about storm financial group and what I learned from them is that they are going down, and many families have lost their savings from them.

 

[Harleyquin]

I also think that this discussion is worthwhile. If we had taken the initial advice it would have been risky enough but the margin loan is the thing that brought storm and their clients undone, at least this is my belief as I try to understand this scenario, and I'm hoping that through this type of discussion that I will learn if I'm right or wrong.

Another FP said 'didn't they explain to you what a margin loan was', no they didn't. Why didn't we ask them to explain a margin loan. How do you ask them to explain something that you know nothing about!!!

The 'next steps' for the margin loan was sent out in the mail, there was no discussion about it. Storm rang up and said 'you have to sign your paperwork and send it in'. We did as they recommended after a phone discussion, which I'm not going to relay here. What was our mistake, and we did make them, it was not reading and understanding that paperwork thoroughly. Our fault. In hindsight there are things that we could have and should have done to prevent this. However this is where we made the mistake of trusting these people. We put our absolute trust and faith in them that they had our financial good will at heart. How wrong were we.

Also in hindsight, I think that storm should have explained a margin loan thoroughly and also explained the risks. They didn't. I don't know if it's illegal not to explain what a margin loan is but ethically and morally I think that it's very important for a client to understand exactly what is it.

I am happy for people who want to mortgage their homes and have huge margin loans if that's what they want and can afford it. I don't think that they should make it illegal. What I do think though is 'we the uneducated should not be taken advantage of by planners/ need protecting / or need educating /whatever the answer is' and 'if they are approved by ASIC and FPA then there should be some sort of monitoring or auditing procedure in place to ensure that the planners are doing the right thing by their clients.

I wonder about 'doing our own research', some of these planners are highly educated in their field, we would have no hope against them if they choose to step outside the law. If they choose to use their education against us they can succeed and that's why I think that the storm scenario will and can occur again. It seems to be human nature. Alternatively, if you are lucky enough to get a good one they hopefully will set you on the right path for life. It's a bit like Russian roulette really.

Someone told us that 'we were just unlucky enough to walk through the wrong door'. It's about time they closed these wrong doors, surely it's not that hard to do, or is it?

A quick look at the storm operation by an auditor should have been enough to tell him or her that there was a major problem. I can't understand how the investigators from ASIC missed this when they looked into storm prior to the collapse. Just a few thoughts on this stormy subject.

I think that it's very important for all of this to go to trial and have the storm and banking people explain to a court of law why they participated in what I am happy to call a ponzi scam.

 

[Julia]

- that I could expect returns of 10% per annum[/I

We weren't told this, in fact, we were told not to expect a return for the first 5 - 7 years.

What??? No return for 5 - 7 years, despite paying 7% upfront? You thought that was acceptable?

 

[Harleyquin]

We were happy not to get a return while we were working Julia. We don't and have never lived an elaborate lifestyle and had no need for extra income while we worked. Is there a problem with this. I looked at it as 'planning for retirement'.

We knew that we had the fees to cover before any return was forthcoming, and wanted to be comfortable, not super rich, in retirement which was 5 to 7 years away, so yes we were happy with this. This was a long term plan and our preference on our personal profile stipulated this.

gg I've checked my documentation and can't find any mistakes in what I've written from the PP. Where do you think the problem is, just in case I've missed it.

 

[Garpal Gumnut]

gg I've checked my documentation and can't find any mistakes in what I've written from the PP. Where do you think the problem is, just in case I've missed it.

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.

Hq,

I have put in bold the words which were misspelled. No such words exist in the English language. If these were in fact misspelled in the original document, it could be argued that the document lacked clarity and you were not adequately advised of risk. This would be particularly applicable to para 2 and para 4.

gg

 

[Solly]

.... I think that it's very important for all of this to go to trial and have the storm and banking people explain to a court of law why they participated in what I am happy to call a ponzi scam.

Harleyquin

This is exactly the opinion of my Stormer mate. I dropped in to see him during the week, do a 'health check' to make sure he was surviving. He too really hopes that this does go to full trial so that there is complete exposure of all the contributory events in this saga.

He was not a high flyer or had or wanted the trappings and lifestyle of the rich and famous. He told me he just wanted to have a financially secure future, guided by a reputable financial organisation with links to reputable banking partners. I believe that this was also the desire of many of the Stormers who I have observed at the Inquiry and the various hearings.

 

[Judd]

... How do you ask them to explain something that you know nothing about!!!...

By continually asking questions until you do understand.

Issue is that some people don't like to do this as they think it makes them look foolish and uneducated. Others don't give a rats about what others think and just keep on asking the awkward questions.

 

[bunyip]

By continually asking questions until you do understand.

Issue is that some people don't like to do this as they think it makes them look foolish and uneducated. Others don't give a rats about what others think and just keep on asking the awkward questions.

Harleyquin

Judd is right - if you don't understand something then it's vitally important that you keep asking questions until you do understand.
And equally important that you do your own research to check the veracity of the information you're being given. Particularly when you're in a situation where someone is trying to sell you something - some of these dodgy operators will tell you what they think you want to hear, just to get you to sign on with them.
Doing your own research in regard to margin loans is not as hard as you might imagine....there's a wealth of information freely available on the internet, or simply by talking to stockbrokers, bankers, accountants etc.
You’ll see what I mean if you go to Google and type in ‘margin loans’...... or ‘risks of margin loans’

As for paying 7% upfront fees for a strategy that expected no returns for 5 - 7 years - like Julia, I too am gob smacked by this.
They must have been strongly hinting that you'd get astronomical returns after the first five to seven years to compensate for having your money tied up for so long without earning a dime.

Simple research into the stock market would have showed you that the market had been strongly bullish since the end of the Gulf war in 2003. Stock market charts are freely available on the internet.

A bit of simple delving into market trends would have given you a pretty fair idea of how long bull markets tend to last before the next bear market sets in.
Assuming that you signed on with Storm when the bull market had been in progress for two or three years or more, their strategy would have assumed that the bull market would run for a total of more than 10 years, otherwise you’d have no hope of making money, not even after the initial 5 – 7 years of zero returns.
To assume that a bull market would last more than 10 years is outlandishly optimistic. It’s possible, but highly unlikely.
A bit of simple research into market trends would have provided you with this information.

No matter how convincing and knowledgeable your financial adviser sounds, you absolutely MUST do your own research to check the veracity of the information they’re giving you - otherwise you’re probably safer sticking to conservative investments such as term deposits.

 

[Julia]

By continually asking questions until you do understand.

Issue is that some people don't like to do this as they think it makes them look foolish and uneducated. Others don't give a rats about what others think and just keep on asking the awkward questions.

There are many excellent posts on this thread, but for containing the absolute essence of what matters, this is the best.

As Donald Rumsfeld so famously said: "We don't know what we don't know".
So you need to keep asking until you are sure you know every detail of what is being suggested to you.

Harleyquin, even if you were still working, it just blows me away that you would be happy to have a very considerable amount of money earning nothing at all for five to seven years! Just sticking it in a bank account would have been an improvement, would have been safe and would not have cost you a 7% entry fee.