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Storm Financial Group

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"If some Storm clients were in fact as well-heeled as the one you describe above, then why the hell would they get involved in a high risky strategy such as Storm proposed? Surely greed comes into play in that situation.” Bunyip

A submission sent to the PJ-C by a greedy Storm investor!

"On the 5/12/06 Storm Financial signed me up and took out a loan with the Commonwealth Bank for $460,150.00 For this the bank used the equity in my home and a block of land that I owned.

It took Storm eight month to sign me up and then I only signed up with the guarantee that I would not lose what I already had. I had asked to be put in “low risk” and to leave enough money in the fund to pay out my loan. I was told that I would never lose as long as I did what storm asked me to do. And was told that they had insurance to cover me if any advice they gave me went wrong and I would then get back what I lost.

Both Storm and the Commonwealth bank knew that I was only earning around $500.00 dollars a week, and that there was no overtime to be had to increase my wages. They had copies of my payslips. Storm also knew that I was injured and could not do heavy work like I used to do. Storm also asked me how my health was and reassured me that it should not take too long before I could retire. I told them I was no good at a desk job. I had also told them that I would never be able to pay this loan off as the interest on the loan was higher that the money I earned in a month, and the wages I was earning was barely enough to live on as it was.

I was told that all I would only have to do is pay $500.00 a month to help out for the first Year or two and the fund would take care of the rest. Well it has been more than two years and now there is no fund left and the banks are after their money. Well I kept up with my part of the loan agreement paying $500.00 a month for over two years, and believe storm and the Commonwealth Bank should pay the rest as they said the fund will take care of it and knew my position as far as health and work and finance goes.

I believe that I have been used, lied to and cheated. The Howard Government was asking people to invest and take the pressure off the economy by becoming self funded retires as there was not going to be a pension later in life. Or was the Howard Government part of this plan as well to gain the trust of hard working loyal people who have paid their taxes all their lives and are now being stripped of their life savings and being punished for trusting the people we were told to trust in the first place. If we cannot trust the Government the banks and other people we turn to for advice or help. I guess we should stop calling this Country the lucky Country and call it the Country of Louses, Liars, and Rip-off merchants.

My health has suffered and I cannot see any reason for me to carry on. And to think
my Dad helped to save this way of life by enlisting during World War 2.

I first became aware of this when I rang home to check my answering machine on the 10/1/09 and their was a message from Andrew Leece from Macquarie Margin Loan telling me that if I do not pay out my loan within the next 4 or 5 days I would have to pay around $5000.00 dollars a month in interest.

I cut my holiday short and came back home to see if I could fix up this mess. I rang Storm a number of times during December and the first week of January as there were a lot of stories in the paper about Storm. I was told not to believe everything I hear or read, and that I was in a good position to ride this out and not to worry as they had everything under control. Storm was a little disappointed that I did not trust them to the fullest and told me to enjoy my holiday and not to worry.

I hope that you can restore what little faith I have left in this country and put this right sooner rather than later."

Wait a minute! Didn't he rely on other people's integrity? Didn't he know that he couldn't trust the people that told him to do this despite the fact that they were financial advisers? What a fool to rely also on the banking institutions that profess to have banking codes of conduct. Didn't he know that he couldn't count on ASIC or the statutory regulations to protect him either? If you ask me, he didn't know too much full stop!

Move over fool! I need to count my money! Next!
 
Issues with Housing loans for investment purpose.

Bank of Queensland (Colonial Home CBA were just as bad!)

On 25 June, 2009, the BOQ made a statement to the Australian Stock Exchange saying, "Based on the Bank's knowledge and enquiries to date: There is no evidence of improper or dishonest practices or conduct by the Bank in connection with Storm clients." In evidence to a Joint Federal Parliamentary Committee in September 2009, Mr Liddy stated, "If there was wrongdoing in the [North Ward] branch and we had identified wrongdoing, we would take action."[/I]

Evidence: (BOQ internal reviews)

"Basically none of the info provided and input on the applicant is accurate... I would suggest that things may unravel at a rate of knots from this point on..." [Lindsay Johnson BOQ Risk Assessment]

"North Ward branch had, in many instances, not included Storm client's margin loans as a liability when calculating whether they could afford more debt...

"On many referred loans a standard comment ‘no other debts held other than for example credit card etc' despite knowledge of an existing margin loan...

"Income confirmation is based upon a printout of Colonial Geared Investments" which indicated that they had a margin loan of $1.453 million. We should have investigated amounts borrowed and included in servicing....

"A print out of Macquarie Margin loan showed a debt of $724,000 however there was "no allowance in servicing for this debt...

"When applying for an earlier loan, in August 2006, the bank had on file a rate notice dated August 2004 which indicated a pension discount for Mr Reynolds, so the $100K income claimed in the application is obviously not true...

"Over and over again Storm had sent the North Ward an initial letter detailing margin loans but that these amounts were "not disclosed" in the Bank's computer system or the loan applications...

"In one case, the report noted that an initial letter from Storm had indicated a margin loan balance of $1,318,402 but that North Ward's co-owner manager Mr Matthew Buchanan had stated in comments recommending approval ‘No other debts held other than credit card facility...'

"Had such margin loan amounts been included in the Bank's serviceability calculations, it's highly unlikely the loans would have been granted...

"Noted that North Ward branch had accepted photocopies of disbursement authorities from clients on Storm letterhead. Best banking practice is that photocopies are not accepted because they are too hard to authenticate...

"Example of one couple who took a $1.168 million dollar Bank of Queensland mortgage. Their disbursement authority authorised the payment of $280,919 directly to Storm in what appeared to be a commission payment. This represents 24% of the loan amount...

"It is noted from review of some of the loan files that it could be construed that income and ongoing commitments may have been manipulated to achieve approval. Should this prove to be the case, then these loans could be set aside..." [Jeff O'Sullivan, BOQ Senior Manager - Credit Risk Review]

"In the months following the initial 2006 credit risk review, action should have been taken by the BOQ's area manager and state manager to ensure the problem areas were fixed. But there was a recurrence of the same sort of problems identified in the 2008 credit risk review...

"I have conducted a number of credit risk reviews of North Ward's business over the years and have previously questioned the integrity of the data on the files... These credit risk reviews had been conducted in late 2006/early 2007 and another in February 2008. In addition to these two formal reviews of the North Ward branch, there were two or three informal reviews initiated to "clarify some rumours that were going round the bank." [Mr Alan Butler, BOQ Head of Portfolio Management and Financial Crimes]

"Prepare a report in relation to the processes that saw Reynolds (a Vietnam Vet also now mentioned by the ‘Sydney Morning Herald’) receive a loan, whether our processes were followed ... and any remedial action we may need to undertake in relation to customers... The purpose of the review was "firstly potentially being able to selectively use outcomes for external (press) purposes and secondly, whether our process has been followed... Sooner or later we will receive some hard questions about Storm, our relationship and affected customers. While, from what we have seen to date our position is defensible, there remain some gaps..." [Mr Bruce Auty, BOQ Group Excecutive]

Lying by omission

One lies by omission when omitting an important fact, deliberately leaving another person with a misconception. Lying by omission includes failures to correct pre-existing misconceptions. Also known as a continuing misrepresentation.

All three CEO's of the CBA, BOQ and Macquarie Bank have lied before the Parliamentary Joint Commission with regard to their Bank's part in all this. If you and I had done the same, the full weight of the law would come down on us. Banks are immune! But then I forgot! They always tell the truth anyway so it doesn't apply.
 
asset protection!!!!

storm advisers never took it into account, for ther clients, nor themselves.

my asset protection strategy.

have a home fully paid off,never give personal guarentees ever, if you do dont own anything.

have heaps in superannuation, creditors cant get it, unless you deliberatley hid it in there.

now i understand that alot of these storm advisers ended up underwater too. these guys should of gone about point 1 and 2 above, if so theyed be okay, now too me as they didnt it gives me the impression that they werent professionals.....any professional financial planner has appropiate asset protection themselves and it is paramount for there client, maybe they were truly just NORTH QUEENSLAND COWBOYS
 
From the quoted portion contained within Frank Ainslie's post:
I was told that all I would only have to do is pay $500.00 a month to help out for the first Year or two and the fund would take care of the rest.
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So you just accepted that at face value? Didn't ask how this would work? Insist on seeing the figures which allowed them to make this nebulous claim?
Didn't your antenna go up at just the phrase "for the first year or two"? How vague is that?



So now we are even including the Howard government in the blame game! Simply because they perfectly reasonably suggested people should aspire to be self funded in retirement. For heaven's sake!

Every day we have to make decisions about what to buy or what avenues of life to pursue. The above suggests we should be able to simply accept whatever anyone tells us and believe that it's unbiased, disinterested advice.

If you want to buy a car and you go to a car dealer who tells you that for X dollars you can buy a car which will never go wrong, will not need servicing/ monitoring, and will actually make you money when the market for cars is falling, then frankly, if you believe this, you need to start all over again.

Once again, we have the sad story of someone who placed a completely unreasonable level of trust in a strategy which - if they'd just analysed it for five minutes - was quite obviously totally flawed.

I'm genuinely sorry that people have been hurt, but as long as you continue to believe you had no responsibility in accepting the suggested strategies, you're choosing to remain in victim mentality.

The much healthier option is to accept that **** happens to all of us, whether of a financial, emotional or physiological/psychological origin. The best we can do is then to recognise what happened and to take the appropriate steps to ensure it doesn't happen again.

If we cannot trust the Government
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Trust the government? What planet are you living on?

the banks and other people we turn to for advice or help. I guess we should stop calling this Country the lucky Country and call it the Country of Louses, Liars, and Rip-off merchants.
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Funny how in about 30 odd years of dealing with banks, I've never had a problem and indeed have found them entirely helpful and reasonable.

That's not to say they haven't engaged in some inappropriate behaviour in this case, but if you'd asked some questions instead of blindly following what should have obviously been ridiculous 'advice' the situation wouldn't have arisen.

Is Australia the Lucky Country? I don't know. Certainly, as with any other country, corruption exists. As individuals we can't change this. So if we want to survive, we need to protect ourselves and obviously avoid blind trust in a bunch of people who have self interest as the prime motivation.
 

Financial advice!
 
Frank Ainslie said:
Financial advice!
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So there was no carrot to get you to fork out 7% on a geared up amount? You just thought this was the going rate for advice?

Did you go anywhere else and compare service offerings and costs? Again a short meeting with another planner or a browse of a few websites probably would have told you how inflated that fee was. I have heard the Storm line that it was cheaper in the long run than paying an ongoing fee, but again that is bulldust. Did you do your sums before handing your life across to them?

No disrespect intended, but for the life of me I can't comprehend how on earth a rational person could pay such a price for such simple advice unless there was some kind of carrot dangled in front of you...a guarantee of sorts that you would earn this much or that.

I mean you don't go to a shop and pay for goods without some idea of what their market price is do you, unless the bells and whistles that go with it are supposedly worth the extra money?
 
Julia you're one of the lucky ones if you've never had any problems with the banks in this country. Once you start asking people of their experiences with our banks you realise that there are in fact major problems. As one businessman recently said something similar to this, 'I only go to bank x because it's the best of the worst'

That's how the majority of us think and there is a class action, the largest in Australian history I believe, were thousands of people have joined forces to fight the greed of these huge money making institutions. If you're a customer you're just a cash cow.

They pay their CEO's millions pa, they make annual profits in the billions pa, they pay their tellers and minor staff little more than a basic wage, there are huge pressures put on bank employees to sell the banks products, many ex bank employees are now the most anti bank people in this country and they offer nothing to the customer.

I make a point of questioning ex bank employees when I find out that they've worked for a bank and the stories that they have to relay support what I've said above. I have spoken to three who left with major stress problems caused by the banks attitude to its employees. Their remarks concerning the storm financial scenario are also very very interesting.

I've had a lot to do with a range of professionals in recent years and the subject of storm financial is never far from the surface and has been the subject of many an interesting conversation. The number of people who say to me 'the banks have a lot to answer for this' is quite amazing. I often wonder if any of the banks realise just how much damage this case is doing to their reputation, it is certainly not doing them any favours.

Their only objective in life to to make as much money in the shortest possible time and by any means. Once upon a time before deregulation you got service from the banks, this is no longer the case.

As you've said they are huge public companies and the only people who have any level of respect for the banks today are the shareholders, and that trust is equivalent to the amount of shares that they own, The banks shareholders don't care what the banks do as long as they make a profit on their shares and they are the first ones to scream if they don't

I can't believe that any shareholder would vote to pay their CEO millions per year. This is a monstrous amount of money and nobody needs that level of money to live comfortably, it's sheer greed. This line of thinking is perpetuated by Wall Street and there is no need for us to follow their lead when you look at what the banks have done in the US. Once again the level of their wage is no guarantee that you're getting the best man or woman for the job.

I would like to see a return to the good old days where the local bank manager was a person who you could trust and he had our respect. I wouldn't trust any of them and certainly have no respect for them. Personally I think they are the major perpetuators of greed and corruption in this country.
 

Frank

You really should read things more closely.
Here is what I asked....."If some Storm clients were in fact as well-heeled as the one you describe above, then why the hell would they get involved in a highly risky strategy such as Storm proposed? Surely greed comes into play in that situation.”

You just don’t get it do you Frank? My question, and the comment about greed that followed the question, was in relation to people who were already well-heeled when they went to Storm. I was not referring to someone who’s trying to scrape by on $500 a week like the man who sent in that submission to the PJ-C.

I believe my question was a fair one, and the reason that I and others have asked it a number of times is because nobody has yet come up with a plausible answer. In fact I put this question to you about a week ago, but you chose to ignore it, which of course is your right – I have no problem with that.
Just to jog your memory, below in bold print is what I asked you.

Frank.....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, 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 Frank, don’t bother telling me that self-funded retirees are not necessarily wealthy – I’m well aware of that. But some Stormers, albeit a small minority, were seriously wealthy before they approached Storm. So the question arises, ‘why did these seriously wealthy people do it when they had no need to’?
The answer?....well I guess that depends on your perspective, but it appears that the desire for even greater wealth overcame their good judgment.
Or to put it more bluntly, they just got greedy.

So argue all you want, Frank. But if you’re already loaded and you just keep wanting more and more wealth, then tough luck if you finally run aground because your greed clouds your judgment.
 
Bunyip what has the fact that stormies may or may not have been wealthy pre storm got to do with seeking financial advice? Why is it considered by some to be a sign of greed to seek help with your finances irrespective of your financial circumstances?

Has anyone on this forum seen any evidence that if you are well heeled that you shouldn't be seeking financial advice from financial planners or banks. Even large companies with billions at their disposal employ people to advise them on financial matters.

I would think that the more money you have the more help you would need to make sure that it is preserved. Is this so wrong.

Whereas for those of us who are on ordinary wages, we are seeking financial help so that we have enough to retire on.

Then there are those who inheret a great deal of property and or cash and suddenly they find themselves in unfamiliar territory, they are now considered wealthy, but in need of some serious financial advice.

Financial planners, ASIC and banking people all know that they are dealing with clients who have a range of financial skills but generally are not as financially astute as they are and that's why they are in business in the first place, to help those who need help with their financial plans.

Surely the real answer to this is to have genuine people in charge of financial advice firms and other financial institutions. I recently had a year 12 student, who is studying accounting, that one of the first statements in her text book is 'accountants need to be accountable.' Maybe someone else can verify this.

If this is the case then they, ie the financial people offering their 'services' to clients also need to be accountable.
 

Hi Maccka,

Spot on!

"Opinion is a waste of energy and time! What we need is cold hard proof."

I do not have the time to waste on people that are here to massage their own egos. I will supply as many of the facts as possible, then let you and they be the judges!

The blame game has been going on since this first started. There were various parties involved and the blame must therefore be shared around! No one party is the cause of all this. Storm may have had the gun but it needed to get ammunition from somewhere. The gun (financial) laws in place were inadequate and the sheriff was asleep on the job. Result! One big **** up!

People on this forum that are trying to blame just one party are uninformed. They have to be to ignore the evidence that has already been uncovered. This is one of the most complex cases in Australian financial history, and it will probably set some new legal precedents. Trying to tie it all up in a neat package as many are trying to do is just not possible, questioning the victims as to their motives in using Storm is non-productive, and blindly supporting the banks or Storm is ignoring the available evidence that binds all parties together.

Good post!
 
The Storm Financial model (Just for the record)

There have been people even within SICAG that have been prepared to defend the Storm financial model. A report was prepared by Mr. Brett Walker on the instructions of the liquidators. He is an expert so I think he should have the final say:

In relation to whether clients of Storm should have ever been advised to mortgage their home for the purpose of investing the loan proceeds in index funds (as was Storm's advice to many clients) Mr Walker states:

I believe the risk capacity of the clients would have excluded their primary residence from any investment-related strategy unless there was clear evidence before the advice provider that the clients were people with a risk tolerance significantly higher than the average retail investor.

It is my opinion that the level of risk tolerance required of a person being asked to embark on a gearing strategy using their primary residence as collateral whilst also borrowing funds and securing that loan against the assets being invested into (in this case unlisted index funds) is such that fewer than 1 % of the population would be considered a suitable "fit".

And

It is my observation that the majority of financial advisers specifically exclude each client's primary residence from their assessment of "available" investment assets for the very simple reason that, to recommend someone use their home as collateral to invest in potentially volatile investment markets would not be in the interests of the majority of clients.

And

I am of the view that gearing to meet one's financial objectives is an option that should only be proposed to people who (in the advice provider's sincere and objective view) have the appetite for the risks associated.

In my opinion there are very few people (especially those who would be characterised as "retail clients'? who would be a good fit for this type of investment strategy

In my opinion the inclusion of the family home in any investment strategy is an indication that the investment strategy is unsound unless there is clear evidence of the attendant risks (e.g. losing the home due to falling markets) being within the risk appetite of the client.

In order to reach that conclusion a professional advice provider would need to establish through some objective means that they had tested and assessed the client's attitudes and psychology in relation to such a risk-taking scenario (i.e. pledging their primary residence in pursuit of speculative gain) and that testing and assessment would need to have displayed a clear preference for the assumption of that risk.

In my opinion the suggestion that a client include and thus employ their primary residence in their investment portfolio can rarely be in the interest of the client.

In my opinion suggesting to the clients that their residence created an exposure of any kind to the investment property sector was fallacious in the context I have seen it used in the Statement of Advice

In my experience the primary residence is most often considered by professional financial advisers to be an "excluded asset" when it comes to designing investment portfolios. The reason for this approach is that for most advisers the risk of a client losing their primary residence in pursuit of an investment objective the adviser has recommended is a risk too great for them (the adviser and the Client) to contemplate.


What did he say, "...fewer than 1 % of the population would be considered a suitable "fit". I think we can leave it there!
 
The Storm Financial model (Part 2)

Mr. Brett Walker also stated:

As stated in the prospectus issued by Storm, new and existing clients were subject to "an extensive education process" relating to the proposed investment. Further the formal advice which clients received was long and detailed. The accuracy and relevance of the material included in the education process and the formal investment advice was closely examined during the public examination process.

In section 6 of this Report we summarised the relevant statues governing the contents of Statements of Advice (SOA) and in the annexure to this report we reproduced the relevant legislation. In short the statues make it an offence to provide a SOA which is defective or misleading in a material particular.

The SOA that Storm normally provided to clients included propositions with which Mr Walker, the liquidator's expert, disagreed. Among the propositions which Mr Walker disagreed with were the following.

* The proposition that it is necessary for a client to gear to meet his or her financial objective.

* The proposition that a clients family home should generally be treated as an investment asset, as opposed to treating it as sacrosanct

* The use of the term "claytons debt" by Storm when referring to funds borrowed by clients in pursuance of the advice given by Storm. In that connection Mr Walkers observes:

Given the likely public awareness of the term "clayton's" as a term that implies the opposite of "real" or "actual" it seems likely to me that the use of the phrase "Clayton's debt" would have suggested to Storm clients that the use of debt to finance the acquisition of income-generating capital was preferable to the use of debt to do anything else within the context of their investment goals. In my view the use of such a term would suggest to a reasonable person that anything labelled "Clayton's debt" was not really a form of debt at all. In my view that is an inappropriate use of the term.

• The inclusion of a chart which compares growth and dividends on shares to just growth (without rent) on property. In that connection Mr Walkers observes:

To the extent that the graph does this I am of the view that it is a flawed comparison. In my opinion you cannot competently compare asset classes (especially assets within the growth sector) unless you compare growth and income components of each. It is clear to me that the table creates the distinct impression that Shares are an asset class far more likely to provide capital growth over the long term than Property (even Sydney*based residential property). I am unaware of the precise impact including rental income would have on the numbers in the table but am of the view that such information would tend to show Property in a more favourable light than is implied in the table as it appears in the SOA.

• The prediction that it is likely "property prices will remain flat or decline over the next 5 to 15 years in real terms". In that connection Mr Walkers observes:

In my opinion this is a sweeping statement that appears (whether deliberately or inadvertently) to include cyclical property sectors like commercial and industrial as well as residential sectors.

I say this even though the content of page 15 appears to be focused exclusively on residential property. The term "property prices" is unqualified and might therefore suggest to a retail client that property as an asset class was unlikely to be as effective an investment option as the managed funds Storm was recommending to them.

In my opinion the statement seems aimed at eliminating property as an option for consideration under the "Journey to Capitalism" concept being promoted by Storm. When considered in the context of page 9 of the SOA and the advice provider's presumed expertise in investment decision making it seems highly likely to have put paid to any consideration by the client that property was a viable alternative for investment gearing or other purposes. Given the sheer breadth of the property market (by State, region, sector (commercial, industrial, residential}, structure [listed, unlisted, individually held, pooled] etc.) and the very real likelihood that different sectors within it will experience different demand and supply impacts over time I find the blanket prediction at page 15 to be an unreasonable prediction, particularly given the apparent context of its use.

Mr Walker also states in his report:

Since 1992 I have reviewed hundreds of both Statements of Advice (since 2002) and
Financial Plans (prior to that). ln that time I can recall only one other instance of a piece of written advice that the advice provider required the client to sign an acknowledgement at each page that they had read and understood it. In the context of a 110 page document such as the Storm SOA I find it extremely difficult to believe that a client (even one who has been drilled in the process through a course of meetings over 183 days) could make sense of the majority of the content within the SOA.

I am not aware of the context in which each page was signed but would be surprised to be told that the advice provider read and explained the import of every word of every page to every client as they signed each page in acknowledgement of their understanding.

One of the cornerstone rules in relation to SOA content is contained in sections 9478(6) and 947C(6) which requires that 'the statements and information included in the Statement of Advice must be worded and presented in a clear, concise and effective manner. "In my view the SOA is unclear, verbose and ineffective.

I mean "unclear" in that the SOA fails to establish in my mind what the relevant personal circumstances of the client are, hence rendering its advisory content invalid. I mean "verbose" in the sense that the 110 pages (plus appendices) does not appear to do anything more than deliver the message I summarised above: That is:

* Re-finance your home loan to enable those borrowed funds (net of any existing mortgage debt repayment) to be applied to the acquisition of unlisted managed investments - presumably outside of the superannuation environment.

* Make sure the new loan is "interest only" in order to minimise the repayment amount.

* Take out a margin loan that will be secured against the value of investments into unlisted managed investments.

* Invest any income generated (net of repayment of interest on each of the above loans) by the above investments back into the same unlisted managed investments.

I mean "ineffective" in the sense that the SOA appears to avoid or ignore any need to assess what the clients actually want to achieve and to then assess that in terms of what they can afford to risk and what they can bear to risk in pursuit of that objective.
 
A question of greed! (Part 1) For Bunnyip and the other doubters

There have been a number of assertions by some uninformed people since the ‘Storm Financial’ collapse that clients of Storm Financial were simply greedy and, as a result, they took unnecessary risks that culminated in their losing everything when the global financial crisis occurred in late 2008. In other words, "we were well aware of the risks we were running and went ahead and participated in the Storm scheme anyway!"
Nothing, in fact, could be further from the truth! You don't put aside a nest egg for retirement by being stupid! Nor do you gamble in the hope that you might get lucky! On the contrary, we were circumspect and sought investments that were "low risk": employing an investing strategy on a broad front. Or so we thought!

That is what Storm Financial sold us anyway, but they forgot to tell us that they and the banks had their own agendas. They had plans in place to use our money for their own ends Let’s now look at the financial plan Storm and the banks that supported that advisory firm promoted:

Storm’s SOA - Page 60 of 107 - Mr VF Ainslie & Ms HM Gillies 15th May 2007

“Real & Manageable Risk

There are two types of risk: real risk and manageable risk. Each of the following types of real risk involves the loss of your capital, or the loss of income. This is true whether the capital and income lost is that you have already earned, or is the capital and income you had the potential to earn, but did not earn because of the choices made. Real risk is the possibility of irrecoverably losing some or all of your capital.

We have identified 3 distinct types of real risk:

* Default Risk is the potential to lose your capital because the company you have invested in has become insolvent or bankrupt.

* Asset Selection Risk is that risk associated with choosing the correct asset classes in which to invest; and:

* Share Selection Risk is due to the uncertainty that you will choose correctly ahead of time the companies that will perform well in the future.

Another kind of risk associated with investing is that the returns you earn will be higher in some years than in other years, and in still other years the returns may be negative. This variability of returns, or volatility, is what financial markets refer to as 'risk'. This understanding of the term 'risk' lets us see the truth in the old saying “the higher the risk, the higher the return”. It is true to the extent that assets with high returns have higher volatility than assets with lower average returns. In order to attain the relatively high returns delivered by Share-based assets, we need to accept the inevitable volatility associated with that asset class. We term volatility or variability of returns as 'manageable risk' - the returns will be variable, but over a longer time frame there is certainty that the asset value will rise.

An Indexed Share Investment captures these average market returns, allowing us to eliminate Default risk, Asset Selection Risk and Share Selection risk. We manage the volatility of your Investment by ensuring that you have adequate Cash Reserves to use for your Plan when the income and capital growth from Shares is low. When the returns from your Share Investment rise, we will replenish the Cash Reserves; in this way they act as a 'dam' to ensure that the variability of returns becomes insignificant to the operation of your Plan. It is very important that these Cash Reserves be maintained for the purpose described above - they are not provided to finance private spending, and should not be used for any purpose without prior consultation with us.”

Sounds great in theory but we, the investors, had no way of knowing then that Storm would not follow these parameters. For one, these so-called “Cash Reserves” were drained by Storm in order to shore up their financial model in a falling market.

In retrospect, it has now become evident that Storm’s model was never designed to allow for a rapid market decline or significant drops over any sustained period of time because cash reserves would be depleted to the point where nothing was left. Neither the banks or ASIC realized that this basic flaw existed in Storm’s financial strategy until it was all too late! We, the investors, certainly didn’t because we were led to believe that safeguards were in place that would alert us when agreed ratios had been reached.

Storm’s SOA - Page 61 of 107 - Mr VF Ainslie & Ms HM Gillies 15th May 2007

“Risks Associated with Borrowing to Invest

Borrowing to invest introduces a new element of risk to any Financial Plan. As well as magnifying gains and losses as described above, using shares as security to borrow investment funds can put the investor in the position of margin call. This occurs if the listed price of shares falls below a level that would cover the lender's loan to you, and then the lender will ask you to contribute the difference. This ensures that the lender's exposure for the shares remains the same.

For most investors, particularly if you have an average income, it is wise to only borrow a limited percentage of the price of 'the shares or units if you want to gear into the market. Although this means the number of shares or units you can buy will be less, so the value of the potential profits and tax breaks will be less, it also means there is less chance you will suffer a margin call. ASIC (1988J Pages 138·139.

This quote highlights a very important facet of our Recommendations. We have advised that you use borrowings to facilitate the purchase of business assets. In so doing, we have used strict guidelines on the amount of those borrowings, and have related them to the size of your asset base. As has been explained within this document, should you implement these ‘Recommendations’ in full your overall debt ratio would be 48%, which is made up of liabilities of 80% of the value of your home and other Property assets, and 49.17% of the value of your Sharebased assets.

These debt levels are well within our guidelines as being prudent. Adequate arrangements have been made to handle market volatility and the associated potential for margin call - these have been fully described and explained in the section of this document entitled Your Post-Plan Position.”

One can see now by the evidence at hand that what Storm preached is not what it practised! The overall debt ratio was never adhered to and Storm had no software in place to capture the total debt anyway (margin loans for instance) so the 48% was a figment of Storm’s imagination, or to be more precise, a blatant lie promulgated by Storm to deceive people. Storm in its SOA’s expounded on the dangers of borrowing and reassured investors that its approach was a cautious one, when all the while, Storm real intent was hidden, and its approach to its clients’ assets was reckless and unmindful of the risks involved.

If Storm’s scheme was, as many claim, a get-rich scheme no one told the investors who had been assured that the risks were minimal and the concentration was on long term growth rather than a quick return.

Storm’s SOA - Page 79 of 107 - Mr VF Ainslie & Ms HM Gillies 15th May 2007

“Your Investment Timeframe

During our discussions, you have indicated that you initially wish to consider wealth creation to cover your immediate living needs and continue the growth of your assets to produce an income for now and over the next ten-year period. We have discussed this time frame and have explained that our recommendations need a minimum of a five-year time horizon due to the nature of the investments required to meet your goals. An Investment may be profitable within shorter or longer time horizons depending on which part of the economic cycle prevails at the start of your Investment. However, it is our advice to you that the longer time horizon will allow you to ride out whatever volatility the market presents and still allows for a profit to be generated.

The building of wealth is a journey - it is not a single event. We anticipate that implementation of these Recommendations is the beginning of a process that will endure for the rest of your lifetime. However, it is reasonable to expect to begin to enjoy the proceeds of the Investment well before your lifetime is over! Before proceeding with implementing this Plan, it is important that you understand that a minimum of 5 to 7 years is required before you can expect to be spending from the profits of the Investment.”

This doesn’t sound like a get-rich-scheme to me or one that would entice risk takers to come on board. In fact it had just the opposite affect on us because it reassured us that Storm Financial had our long term goals in mind and would not be taking any undue risks with our money. As it turned out, Storm used this sort of wording to allay their customers' fears of any risks involved.

The first question that elderly people ask (75% of Storm’s clientele were past retirement age) before they entrust their money to anyone is, “Are there any risks involved?” Storm used this type of "risk free" psychology to win people over. They knew full well that the last thing elderly people want to do is put their life savings at risk. Only a fool would think otherwise.
 
A question of greed! (Part 2)

Last, but not least, is the matter of margin loans. We have been castigated by many for taking out margin loans that only added further to our debt.

Quite frankly, most of us had never heard of margin loans until we went to Storm Financial for advice. Indeed, Helen and I didn't need to take out margin loans because we already had 1.7 million dollars unencumbered in assets. Storm, however, saw it differently. Don’t forget that Storm professed to be professional financial advisors who are supposed to be knowledgeable in their field. In fact, they were quick to point out that they were the experts and we were not! Storm told us that the firm had been operating successfully for years; were backed by some of the major banks in this country; and it handled countless investment portfolios! Storm therefore, it claimed, had the necessary credentials to advise us and manage our money. Who were we to argue or doubt them? As I've said before, Cassandra wasn't around to consult!

So when we were advised to take out margin loans and do all the other things they told us to do, we thought we were acting on solid financial advice. Again, we had no reason to suspect otherwise.

Storm’s SOA - Page 64 of 107 - Mr VF Ainslie & Ms HM Gillies 15th May 2007

"The main difference between a margin loan and a conventional bank loan that uses property as security is that shares change in value each day. This means you can check the daily market value of your investments, and the lender will also monitor your portfolio value daily. If the value falls below an agreed minimum, the lender will require you to make a margin call.

Before we signed with Storm I asked them whether they would be monitoring our portfolios. They assured us that they had systems in place "trigger-points" so there was no risk to our investments. In fact, I have evidence on hand that they told us this and I may yet be using this in a Court of law if Cassimatis gets any money back! That's another story!

I've had our own financial adviser taken off the streets by ASIC. If he has any assets left, he should start worrying as well. Anyway, back to the subject in hand.

"A margin call will be made if your equity - the value of the assets that you contributed to the investment - falls below the agreed lending ratio. If this happens, the lender will ask you to provide additional funds to restore at least the minimum equity position. To help protect against small market fluctuations, there is usually a 'buffer' (typically 5% of the total portfolio value) within which a margin call will not be made.

A margin call requires prompt action to repair, so it is important to plan what you would do if you were faced with one. There are a number of ways you can satisfy a margin call. You can:

*Provide cash to reduce your loan balance
*Provide additional shares as security
*Sell shares from your portfolio and use the proceeds to reduce the loan

If you do not initiate one of these actions, the lender will act on your behalf, usually selling shares to reduce the loan. The best way to avoid margin calls is to be conservative in the amount you borrow."

Let’s look at what happened in reality:

The banks didn't notify us, the Storm investors, when margin calls were made but rather Storm Financial under covert agreements they had with that company. Because they were covert, Storm’s investors knew nothing about them.

Margin calls should be made by prudent banks to their customers within ‘5 days’. It took the Macquarie Bank 3 to 4 weeks to notify their Storm clients directly and some 10 to 11 weeks for the CBA bank to do the same. Incidentally, many margin calls were never made directly to their customers although the exact numbers are still unknown. In a volatile market where days and even hours are critical at times, can you imagine the impact these delays had on customers portfolios.

In these covert agreements between Storm and the CBA/Macquarie Banks, ratios and conditions were agreed to that were not part of the original agreements between the banks and Storm’s clients. It's called breach of contract! Storm Financial were not a party to these contracts and therefore the banks and Storm had no right to alter the conditions of these contracts.

In summary:

It doesn't take a genius to work out that greed was certainly involved in the Storm financial debacle. The greed, however, was not on the part of the Storm investors involved who were innocent parties in all this. Rather, it was on the part of Storm Financial and the rogue banks who conspired together to churn money out of their Storm customers for their own ends. Certainly, nothing that they did benefited the investors concerned in any way. The result was that it left the clients of Storm who were also the customers of these banks destitute, and in some cases, deep in debt. So much for responsible and prudent financial advice and prudent lending as outlined in so-called banking codes of conduct.

Before anyone judges us in the future, we ask them to do one thing! "Please ascertain the real facts before throwing that first stone!" What happened to Lindy Chamberlain should be an object lesson to us all here in Australia not to assume anything simply on what they read in the media or on the word of some smart Alec that is professing to know something he or she doesn't!
 
On the question of 'dangling the carrot', might I suggest that a bunch of golden carrots were dangled under one EC's nose, and the owner of that nose grabbed the said carrots with all paws and claws. This was the ammunition that the empty gun needed.

No need for any survivor of this crime to feel stupid we were duped by the whole industry and we're still getting duped by those who don't want to acknowledge the truth.

No survivor is going to put any hard evidence on a public forum, there will be a time and place for that to happen, and if the powers that be are doing their job properly, there should be an interesting day or two in court.
 
This is the point so many of us find so astonishing. Even invested in the most conservative fashion, this amount of capital (which is presumably in addition to the value of your home), should have clearly been enough to fund a perfectly comfortable retirement.

Bunyip has a very good point when he suggests if you were prepared to risk this amount to make even more, you can rightly be suggested to be greedy.


But surely you would have insisted on receiving a detailed explanation of what these 'safeguards' were?????

Except that you simply failed to ask yourselves "does this stand up to the common sense test"? and, in detail: "what exactly are the protections that are in place to safeguard our investment?"

Frank, I'm not sure why you're continuing to post screeds of stuff that has no relevance to the above absolutely simple criteria which is the crux of your whole problem.

Harleyquin said:
No need for any survivor of this crime to feel stupid we were duped by the whole industry
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Oh, for goodness sake, HQ. You were not duped 'by the whole industry' at all.
You were taken in by a rogue firm, you didn't ask the most basic questions, so allowed the bad guys to get away with their duplicity.

It's absolutely unreasonable and unfair of you to stigmatise the whole industry.
 

A valid point Julia. However, if I had been smashed to the extent that former Storm clients have been, I'd probably feel really bitter about it.

I don't believe that Harleyquin, and possibly others, should be beating themselves up to the extent that they seem to be.

In my view, very few couples or individuals actually plan, and I mean plan, for their retirement. Not many would actually clear the dining room table on a wet Saturday, sit down a decide the level of funds they will need to retire. Home owned, need to cover rates, water, electricity, gas, insurance, car rego and insurance, telephone/internet, repairs and maintenance. And then build onto that the wants (holidays, entertainment.) After which by all means go to a planner if they wish to see if they are on track or need adjustment according to circumstances. And it should be done many years out from retirement not just four or five years because there is simply not sufficient time.

As well, I can understand how a number are affected by the white noise - also known as financial pr0n -coming from various quarters. You should do this, you're unable to do that without assistance (at a price of course.) So Ma and Pa read a survey conducted by an institution stating they need $60k pa or $1m to live comfortably in retirement and off they go trying to get that. What they are not told is that according to statistics (admittedly compiled before GFC Mk I) only 5% of couples aged 65 will retire with $1m so they are likely to be in the 95% and need to adjust their expectations accordingly.

Ah well.

As for various organisations such as the FPA not looking after their interests, it, like other organisations, is merely a lobby group/union. A simple scan of their website shows that planners come first and clients (vaguely) third.

Having said that, there are planners who do work very hard on behalf of their clients. Some may have been aware of the Storm model and its outrageous fees but they were not being paid to look after the interests of Storm clients only their own. As an anecdote, I had lunch with a mate who is a financial planner (despite that, he is a nice guy) and he told me of one couple who, against his advice, have decided to "build" a share portfolio using CFDs. What is he to do, except document his advice, send them a copy, terminate the relationship and leave them to it. Their money, their choice. Same with Storm sadly.

Some things will never change.

I notice that the former Howard Government has, indirectly, been brought into the Storm blame game. What next I wonder? Will it be Choice, the consumers champion, for not exposing Storm before it knew about it? Oh hang it, everybody else has been, so why not?
 
Hi Harleyquin,

“Speak you truth quietly and clearly…Avoid loud and aggressive persons. They are vexations to the spirit!”

You have covered all the bases very well in this posting. I can’t really see how people could argue with what you have said but they will!

I too have also taken the time on this forum to explain our position, quoting details from our Storm SOAs to refute suggestions by some on this forum that we Stormies were all greedy and just wanted more. Again, I’m afraid, it won’t make one iota of difference to some how much irrefutable evidence we have because they just don’t want to listen. They see everything in terms of "black and white" because they are blinkered by their own jaundiced views of the world. Shades of that “jury’ I sat on last year spring to mind.

It’s really a waste of time engaging such people in any form of discussion because they are just going to keep spouting the same line without a single shred of evidence to substantiate their mantra, “You were all greedy!”

Not one of these all-knowing individuals has once commentated on the Banks’ roles in all this despite what I have written in this regard. This alone tells us something about their thinking. They are simply not interested in getting at the truth. They would rather hold on to the notion that the victims are really to blame together with the Greek that came bearing gifts, one E. Cassimatis. It seems to give them some comfort some how!

Their attitudes are really strange when you would think about it because they are not indignant at the thought that banking institutions in this country are capable of miscreant behaviour? Only at us for having invested through Storm. I can't believed that rational human beings would choose to completely ignore the facts and must therefore conclude that such people have a vested interest for adopting such an attitude.

Personally, if I were you, I wouldn't be wasting any more time answering their posts because they will only expend your time and energy for nothing. I’m sure there are others on this forum that do want to hear what happened so they can weigh up the facts. I'd focus on them if I were you and ignore the detractors. They aren't worth the effort!

As for me, I’ll keep on supplying my “screeds of stuff ”as someone put it in the hope that we still have some forum members left with an open mind.

That’s all we Stormies are really asking for really. People that will judge us on the facts and not on hearsay or people’s own personal prejudices. If they don't want to listen, so be it!
 
Judd said:
A valid point Julia. However, if I had been smashed to the extent that former Storm clients have been, I'd probably feel really bitter about it.
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Oh dear, no one is denying former clients their bitterness rights.
I am simply pointing out that it is absolutely unreasonable for any of them to claim that they were "duped by the entire industry".

And, on bitterness, We have a choice about whether or not to hold onto bitter, aggrieved feelings. Most of us will have experienced injustice and the ramifications of the bad behaviour of others at some point in our lives. After a period of anger and grief, it's usually more healing to let it go. At least, so I have found.



Well, Judd, I don't know anyone who hasn't so planned. It's a pretty basic thing to do. And if people haven't, then they have only themselves to blame. Surely you'd think about this just as you'd budget for every other phase of your life.

What's the basis for suggesting the average Australian is too stupid to think for themselves? It takes about 15 minutes to add up various non-discretionary spending e.g. rates etc, then think about what other funds you'd need to fund the sort of lifestyle you want. Hardly difficult.

What they are not told is that according to statistics (admittedly compiled before GFC Mk I) only 5% of couples aged 65 will retire with $1m so they are likely to be in the 95% and need to adjust their expectations accordingly.
Click to expand...
As above. Why wouldn't you just do your own calculations, rather than blindly accept what some newspaper article says?

Having said that, there are planners who do work very hard on behalf of their clients.
Click to expand...
Exactly. Which is why I object to HQ claiming she was 'duped by the whole industry'.


Yes, indeed. I made the same observation earlier. John Howard is apparently to blame because he suggested it was desirable for retirees to be self funded.
This is just one example of the way some of Storm clients are twisting perfectly sensible statements in their bitterness.
 
Julia I can't believe that you would recommend "investing in the most conservative fashion", by which,I assume you mean "in the bank", the very thing we are being told not to do in some of the literature that I've read written by some of the financial experts. Banks pay roughly 3-4% interest, give or take a little each way. You pay half this in tax (I say this from personal experience so know it to be true, but this will obviously depend on individual circumstances). Consequently, you are earning 1-5% on your capital and you have to live on it while keeping up with inflation. So effectively you are going backwards at a great rate of knots. Is this your idea of financial advice?

The answer - you most definitely need financial advice. No stormie was prepared "to risk this amount to make even more" as you suggest. We, and I can only assume many others,asked our financial planner (who has a university degree in the relevant subjects) about the risks involved. My first question was "isn't this risky" his answer " no we have our experts in this field who will be monitoring your investments at all times". That sounded good to me, who wouldn't have a clue, if I pay for this advice I've experts looking after us. You will have an income and keep pace with inflation. Is this greedy, not to me it isn't it's being practical. Greedy is a CEO of the bank earning sixteen million dollars pa.

Julia we were duped by the whole industry, not just 'a rogue firm', this rogue bank had the financial backing of the CBA and all the major banks. We trusted the banks and up until that point had no problems with them, so by going to a planning firm backed by the CBA, we felt that we were in good financial hands. As for asking questions, we made an extremely detailed list of questions before going to see storm, we asked ALL the questions and the advisor answered them all. He seemed to know exactly what he was talking about, and he never baulked once in answering all our hard questions.

As far as the storm model never being designed for rapid market decline, hindsight has proved this to be true, and yet this was an aspect that I questioned closely, and we were told that they had their experts who monitored our investments at all times, bought low, sold high and told us that it was designed to cope with a crash as their were safeguards in place which he explained to us. We understood enough of the explanations to know that he knew what he was talking about and we would be in safe hands. If you need to argue and/or expand on these explanations you'll have to talk to our financial planner as I can't recall all the explanations given in detail.

When a cardiac specialist tells you all the details of your forthcoming triple bypass do you understand and remember all those details. Do you trust that he knows what he's talking about just because he's been to university and studied for x number of years or do you say 'sorry but I don't understand everything you're telling me so I'm not having the operation'. I know what course of action I'd take, sometimes we just have to trust that the experts know what they are talking about. Our financial planner had all the necessary qualifications, and that was one of my questions. It's called trust Julia and Bunyip, not greed. I used to have that elusive thing called TRUST, even in the experts, these days that trust is a little dented.
 
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