Storm Financial Group

This may or may not be of interest....but the attached was a submission by Paul Resnik and Peter Worchester to the PJC which invludes some research they conducted into returns from margin loans etc over a lengthy period of time. They work at Finametrica, which provides a widely used risk tolerance tool for many financial advisers.

http://www.aph.gov.au/SENATE/committee/corporations_ctte/fps/submissions/sub293.pdf

Their research shows the risk involved in margin lending on its own...without the double gearing that Storm investors were subjected to. Also provides a case study using a "black swan" event and it effect on a double gearing strategy.

It highlights how simplistic Storm advisers' approach to this whole thing was, and the lack of real research and stress testing that was undertaken before promoting this high risk strategy to these poor people who were unlucky enough to have graced their marble floored foyer.

I really hope Manny, Julie and their cohorts pay for this, because promoting this strategy to anyone without revealing the true risks, let alone retirees is criminal.

SJG1974 said:

This may or may not be of interest....but the attached was a submission by Paul Resnik and Peter Worchester to the PJC which invludes some research they conducted into returns from margin loans etc over a lengthy period of time. They work at Finametrica, which provides a widely used risk tolerance tool for many financial advisers.

http://www.aph.gov.au/SENATE/committee/corporations_ctte/fps/submissions/sub293.pdf

Their research shows the risk involved in margin lending on its own...without the double gearing that Storm investors were subjected to. Also provides a case study using a "black swan" event and it effect on a double gearing strategy.

It highlights how simplistic Storm advisers' approach to this whole thing was, and the lack of real research and stress testing that was undertaken before promoting this high risk strategy to these poor people who were unlucky enough to have graced their marble floored foyer.

I really hope Manny, Julie and their cohorts pay for this, because promoting this strategy to anyone without revealing the true risks, let alone retirees is criminal.

Click to expand...

SJG 1974

Agreed.

Now, just say I could show you documentation that proved that the BANK had complete knowledge of the STORM model. That they reviewed the investment protocol over a period of weeks, looking at actual financial histories of client portfolios etc, etc. And after this period of - what some might interpret as a loose form of due diligence - they offered special arrangements to STORM to enhance their ability to continue to advance the scheme to their clients. Having - you see - decided, after their review, that there was a financial gain for themselves - the BANK and their shareholders - to be involved with the scheme. Namely, loan generation, interest and fees (their stock 'n trade as it were) - via an investment model that they provided their tick of approval to.

How do we then look at the BANK? How do we characterize that relationship between them and STORM? Were they just money lenders - or, had a relationship for mutual benefit, been formed? It has been argued by a former Federal Court judge that the nature of this relationship needed to be declared to the clients of the "scheme" and, indeed, the scheme was required by law to be registered.

And herein lies the problem for the BANK. Not saying Storm is blameless. Not at all. But Storm last time I checked - doesn't exist. Storm needed someone to provide the funding for their clients "financial journey of discovery". The BANK put its hand up and the rest is history.

Igetit said:

Hi Solly,

I probably know little more than anyone else about the time line for this to resolve. As you know, the BANKS have been ordered by the Court to mediate the matter before the end of February 2012. The Court has ordered both the BANKS and ASIC hand over several thousand documents to the legal firm LEVITT-ROBINSON (who act for a number of Storm victims - I am reliably informed 300-400 - in a Class Action on the grounds that the Bank was party to the running of an UMIS) to review in preparation for the mediation.

Documents available to date support the view that an UMIS was in existence. Indeed, the Bank may have already drawn the same conclusion. So the question then is....

Do they risk running such a case and losing. Bearing in mind the material that will be set out before the Court during the three month period set aside for the hearing (SEPT. - NOV.) - is going to be more damaging to one of the parties than the other. If you see what I am saying. And so the pressure now begins to build. One party having lost all, has little left to lose. The other party - well......
.............

I know a large number of Storm victims; they have grown accustomed to waiting for an outcome. They are resilient and - although some will succumb along the way - their spirit will remain with those who continue to carry the fight. I often invoke the spirit of Thermopylae when I speak with them. I am left wondering why the Bank seems so unwilling to acknowledge its involvement in this. How hollow does Mr Norris's mea culpa now appear to all involved. It was a nice piece of PR work at the time but appears to lack substance don't you think?

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Hi Igetit

Thanks for such a detailed response. If I were the BANK I would be seriously reviewing my options. I see that this case has the potential to inflict some real corporate damage in the public arena. I remember the real uneasiness exhibited by some of the BANK representatives while being questioned at the Worrells Inquiry. I suggest that it would be prudent to do whatever is possible to avoid a repeat of that experience.

I agree with your assessment of the resilience of victims of this event. I know they have been through some very dark days, I'm starting to see a light on the horizon for them, one that I am confident will soon shine much brighter.

S

Igetit said:

SJG 1974

Agreed.

Now, just say I could show you documentation that proved that the BANK had complete knowledge of the STORM model. That they reviewed the investment protocol over a period of weeks, looking at actual financial histories of client portfolios etc, etc. And after this period of - what some might interpret as a loose form of due diligence - they offered special arrangements to STORM to enhance their ability to continue to advance the scheme to their clients. Having - you see - decided, after their review, that there was a financial gain for themselves - the BANK and their shareholders - to be involved with the scheme. Namely, loan generation, interest and fees (their stock 'n trade as it were) - via an investment model that they provided their tick of approval to.

How do we then look at the BANK? How do we characterize that relationship between them and STORM? Were they just money lenders - or, had a relationship for mutual benefit, been formed? It has been argued by a former Federal Court judge that the nature of this relationship needed to be declared to the clients of the "scheme" and, indeed, the scheme was required by law to be registered.

And herein lies the problem for the BANK. Not saying Storm is blameless. Not at all. But Storm last time I checked - doesn't exist. Storm needed someone to provide the funding for their clients "financial journey of discovery". The BANK put its hand up and the rest is history.

Click to expand...

No doubt Igetit, if it were proven that the banks' relationship with Storm went further than simply providing the finance to the clients, and that they supported and even encouraged a strategy which is so obviously flawed, then they should pay.

SJG1974
"No doubt Igetit, if it were proven that the banks' relationship with Storm went further than simply providing the finance to the clients, and that they supported and even encouraged a strategy which is so obviously flawed, then they should pay. "



that is what has been said all along..... now you get it !!!!!!!!

Mash said:

SJG1974
"No doubt Igetit, if it were proven that the banks' relationship with Storm went further than simply providing the finance to the clients, and that they supported and even encouraged a strategy which is so obviously flawed, then they should pay. "



that is what has been said all along..... now you get it !!!!!!!!

Click to expand...

No need for that Mash.

You seem to overlook the IF in my response. It is yet to be proven just how involved the banks were in all this. Lets wait until the facts come out shall we before getting on our high horse. The courts will help decide this for us.

I never said the banks were blameless in all of this. Not once. However, I find it quite astounding that some place the blame solely with the banks. That, I don't get (actually I think I do...$$$$$$$).

And the culpability of the banks or otherwise does not change two simple truths that many seem to ignore...

1. Storm were the sellers of the advice. As "experienced" advisers they sold the dream and with it the entirely inappropriate strategy that has seen clients decimated. They charged a high fee to manage clients portfolios and did nothing of the sort. They sold a high risk strategy as "conservative". etc. etc. As far as I know, no representative from the bank ever ran a seminar, wrote an SoA, got the client to sign each page of the SoA, charged 7% up front, and said they would use their you beaut software to monitor clients portfolios. The bank didn't pay Manny and Julie a $24m dividend out of a company profit of $26m in 2008 as the market was declining. Do I need to go on????

2. Clients were either greedy, gullible, naive or a bit of each to have fallen for the slick sales pitch and the promise of riches and should take at least part responsibility for entering into a scheme they obviously did not understand. Still have not had one Stormer provide a proper answer as to what it was they expected for their 7% upfront. Can you enlighten us???

But of course, its easier to place blame 100% at the feet of others rather than clients admit any responsibility for the bad decisions they made.

Fees : we compared 3 financial planners, one being a major bank, an independant fee for service planner and storm. The initial plan which was the cash sum from the sale of our business was very similar from all 3 - use cash to invest in shares and gear up. The 7% fee we considered as being comparable to a one off franchise fee. We were looking long long term, after 5 years we would have been ahead (fee wise) when compared to the ongoing fees from the other 2.
As they say Hindsight is 20 20 vision .... in hindsight how we wished we had gone with either of the other planners... it took Storm and the BANK just 3 years to wipe us out ....

Mash said:

Fees : we compared 3 financial planners, one being a major bank, an independant fee for service planner and storm. The initial plan which was the cash sum from the sale of our business was very similar from all 3 - use cash to invest in shares and gear up. The 7% fee we considered as being comparable to a one off franchise fee. We were looking long long term, after 5 years we would have been ahead (fee wise) when compared to the ongoing fees from the other 2.
As they say Hindsight is 20 20 vision .... in hindsight how we wished we had gone with either of the other planners... it took Storm and the BANK just 3 years to wipe us out ....

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Mash

From a risk perspective, what level of risk did you believe that the Storm strategy was that was presented to you ?

Is it just me or is anyone else not surprised about the banks.

Going back to "a pound of flesh" in Shakespeare, money lenders are not your friend.

Why is it in the past 20 years has society decided that banks are friendly helpful places? Because they were a bit easier to deal with and required you to jump through less hoops than before?

Banks are in the business of lending and making profits. In some cases there are no alternatives to using them. In other cases there is an alternative. Don't borrow. Save and then buy.

I understand that this is simplistic but google "bank rip off" and look at the 114000 results that come up for Australia alone.

Borrowing in any way, shape or form comes with risks attached because the person lending the money always makes sure they are in charge. Whether it be with a slick contract or a 300lb dude with a baseball bat. ASIC and Choice and whoever else don't need to jump up and down more, people need to change their attitude and be more careful.

SJG1974 said:

No need for that Mash.

You seem to overlook the IF in my response. It is yet to be proven just how involved the banks were in all this. Lets wait until the facts come out shall we before getting on our high horse. The courts will help decide this for us.

I never said the banks were blameless in all of this. Not once. However, I find it quite astounding that some place the blame solely with the banks. That, I don't get (actually I think I do...$$$$$$$).

And the culpability of the banks or otherwise does not change two simple truths that many seem to ignore...

. They charged a high fee to manage clients portfolios and did nothing of the sort. They sold a high risk strategy as "conservative". etc. etc. As far as I know, no representative from the bank ever ran a seminar, wrote an SoA, got the client to sign each page of the SoA, charged 7% up front, and said they would use their you beaut software to monitor clients portfolios. The bank didn't pay Manny and Julie a $24m dividend out of a company profit of $26m in 2008 as the market was declining. Do I need to go on????

2. Clients were either greedy, gullible, naive or a bit of each to have fallen for the slick sales pitch and the promise of riches and should take at least part responsibility for entering into a scheme they obviously did not understand. Still have not had one Stormer provide a proper answer as to what it was they expected for their 7% upfront. Can you enlighten us???

But of course, its easier to place blame 100% at the feet of others rather than clients admit any responsibility for the bad decisions they made.

Click to expand...

Hi SJG 1974,

Your comments are not without merit. I dare say some folks involved with Storm were motivated by greed. Some also were likely ill-informed and naive. But these issues you raise have no bearing on the question now before the Courts. Equally, whether or not clients understood what their 7% fees were actually for, again is not relevant.

The battleground that this issue is now being fought on, has nothing (and I do mean nothing at all) to do with the Storm victims. It is all about characterizing the relationship that existed between the BANK and STORM. If it is established that an UMIS was in place when the clients lost everything, then there is a remedy at law for the client. They will get no more, and indeed, no less than that remedy provides for. The comment about "going after the BANK because of $$$$$$$$" is frivolous insofar as the plaintiff is going after the BANK because it is the BANK that stands accused in the proceedings. If Storm Financial was still a registered entity it too would be joined to the proceedings. But it is not. There is in fact only one party involved in the purported UMIS still standing. There is no one else to join to the action.

Getit? It's easy really. Importantly, the issues of "greed and responsibility" in the context of this matter, now only come into play when the reasoning and motives behind the establishment of the relationship between the BANK and Storm are considered.

You can rage against the machine all you like. But the dogs have well and truly barked and the caravans have moved on. As you say nothing has been proven - yet. But I can tell you - there is proof aplenty. The BANK continues to do a good job deferring the inevitable.

Igetit said:

SJG 1974

Agreed.

Now, just say I could show you documentation that proved that the BANK had complete knowledge of the STORM model. That they reviewed the investment protocol over a period of weeks, looking at actual financial histories of client portfolios etc, etc. And after this period of - what some might interpret as a loose form of due diligence - they offered special arrangements to STORM to enhance their ability to continue to advance the scheme to their clients. Having - you see - decided, after their review, that there was a financial gain for themselves - the BANK and their shareholders - to be involved with the scheme. Namely, loan generation, interest and fees (their stock 'n trade as it were) - via an investment model that they provided their tick of approval to.

How do we then look at the BANK? How do we characterize that relationship between them and STORM? Were they just money lenders - or, had a relationship for mutual benefit, been formed? It has been argued by a former Federal Court judge that the nature of this relationship needed to be declared to the clients of the "scheme" and, indeed, the scheme was required by law to be registered.

And herein lies the problem for the BANK. Not saying Storm is blameless. Not at all. But Storm last time I checked - doesn't exist. Storm needed someone to provide the funding for their clients "financial journey of discovery". The BANK put its hand up and the rest is history.

Click to expand...

That's pretty much how I feel, I just haven't been able to put it into words that well. My main grievance with the bank is the undisclosed nature of their relationship with storm. The fact that they allocated storm's business with their own branch number and had at least one bank lender working from storm's office speaks volumes imo. Also the methods used to offer up mutual clients with available untapped equity via highly questionable in office revaluations of property for further "steps".

SJG1974 said:

No need for that Mash.

You seem to overlook the IF in my response. It is yet to be proven just how involved the banks were in all this. Lets wait until the facts come out shall we before getting on our high horse. The courts will help decide this for us.

I never said the banks were blameless in all of this. Not once. However, I find it quite astounding that some place the blame solely with the banks. That, I don't get (actually I think I do...$$$$$$$).

And the culpability of the banks or otherwise does not change two simple truths that many seem to ignore...

1. Storm were the sellers of the advice. As "experienced" advisers they sold the dream and with it the entirely inappropriate strategy that has seen clients decimated. They charged a high fee to manage clients portfolios and did nothing of the sort. They sold a high risk strategy as "conservative". etc. etc. As far as I know, no representative from the bank ever ran a seminar, wrote an SoA, got the client to sign each page of the SoA, charged 7% up front, and said they would use their you beaut software to monitor clients portfolios. The bank didn't pay Manny and Julie a $24m dividend out of a company profit of $26m in 2008 as the market was declining. Do I need to go on????

2. Clients were either greedy, gullible, naive or a bit of each to have fallen for the slick sales pitch and the promise of riches and should take at least part responsibility for entering into a scheme they obviously did not understand. Still have not had one Stormer provide a proper answer as to what it was they expected for their 7% upfront. Can you enlighten us???

But of course, its easier to place blame 100% at the feet of others rather than clients admit any responsibility for the bad decisions they made.

Click to expand...

I'm actually inclined to agree with you. I do find however, that if some ex-stormers are reluctant to admit any responsibility for their decisions, so too are some who were not involved too ready to disbelieve the banks are at any fault either. I think there's more than enough blame to go around, if blame must be laid, and it's probably about fair to divide it equally between the three parties involves - ie storm, bank and client. Just speaking for myself here

Mash said:

Fees : we compared 3 financial planners, one being a major bank, an independant fee for service planner and storm. The initial plan which was the cash sum from the sale of our business was very similar from all 3 - use cash to invest in shares and gear up. The 7% fee we considered as being comparable to a one off franchise fee. We were looking long long term, after 5 years we would have been ahead (fee wise) when compared to the ongoing fees from the other 2.
As they say Hindsight is 20 20 vision .... in hindsight how we wished we had gone with either of the other planners... it took Storm and the BANK just 3 years to wipe us out ....

Click to expand...

My experience is probably similar. We had sought financial advice several times before, each time at a cost, only to be pointed towards the limited range of products or investments that the planner concerned earnt commissions from. This applied both to bank and non-bank FPs. It did not seem possible to obtain an unbiased plan, and we were unaware of any FPs who were not affiliated with a select group of sponsors or the like. Storm's strategy of investing in the ASX 200 as a whole seemed to make a lot more sense than simply picking a managed fund. As to the fees, yes we baulked at 7% upfront, but there were then no ongoing management fees as such, and every prior FP we had seen wanted 4% annually for doing very little ongoing work. We did our sums and worked out that in the long term it was actually cheaper to pay a big chunk up front than 4% year upon year. Naturally this only works if the investment is the long-term nature it was intended to be, and hindsight shows we made the wrong decision entirely. Of course if I had known then that I could invest in the ASX200 directly via STW and the like without paying anyone for the privilege I'd be much better off today than I am. But you don't know what you don't know etc. And some of us were far too busy living/working/bringing up families etc to know we couldn't trust anyone and needed to educate ourselves about everything. Bit of bitterness creeping in there, sorry.

Mash said:

SJG1974
"No doubt Igetit, if it were proven that the banks' relationship with Storm went further than simply providing the finance to the clients, and that they supported and even encouraged a strategy which is so obviously flawed, then they should pay. "



that is what has been said all along..... now you get it !!!!!!!!

Click to expand...

And what many of us on this thread have said over and over again is that the banks should be brought to account if they can be proven in a court of law to have done anything illegal.
What we’ve also said is that no one party is to blame entirely for the whole mess - not the banks, not Storm, and not the Storm clients themselves. All of them bear some responsibility. Perhaps there are some others who also bear some of the responsibility – e.g. ASIC and the FPA for endorsing a dodgy outfit like Storm Financial.

The people who irk me are those who keep lumping all the blame on to others while refusing to take any responsibility at all for their own actions......three who spring to mind are Frank Ainslie, Harleyquin, and Cassamatis.
Perhaps it can be argued that the banks are another party that’s not taking any responsibility for their actions. I believe this argument would not be entirely correct however, given that some of the banks have made financial settlements to some Storm clients.
Maybe they’ll be made to take even more responsibility – we’ll know sooner or later. I continue to watch with interest.

DocK said:

I'm actually inclined to agree with you. I do find however, that if some ex-stormers are reluctant to admit any responsibility for their decisions, so too are some who were not involved too ready to disbelieve the banks are at any fault either. I think there's more than enough blame to go around, if blame must be laid, and it's probably about fair to divide it equally between the three parties involves - ie storm, bank and client. Just speaking for myself here

Click to expand...

This is the most sense I've seen on this thread since I last posted.

gg

Garpal Gumnut said:

This is the most sense I've seen on this thread since I last posted.

gg

Click to expand...

GG

Are you going to be at Melton on the 19th ?

S

DocK said:

I do find however, that if some ex-stormers are reluctant to admit any responsibility for their decisions, so too are some who were not involved too ready to disbelieve the banks are at any fault either. I think there's more than enough blame to go around, if blame must be laid, and it's probably about fair to divide it equally between the three parties involves - ie storm, bank and client. Just speaking for myself here



Of course if I had known then that I could invest in the ASX200 directly via STW and the like without paying anyone for the privilege I'd be much better off today than I am.

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DokK

What I’ve always admired in your posts is your complete honesty in taking responsibility for your actions. Also you stoic attitude in getting on with your life instead of crying over spilt milk.
Smiley is another one who has shown similar qualities.
There are a few Stormers on here who could learn some worthwhile lessons from you two.

A question for you – when you were seeking financial advice, did you consider consulting a stockbroker to ask what options were available to you for investing directly in the market?

Solly said:

GG

Are you going to be at Melton on the 19th ?

S

Click to expand...

I am unsure, I initially thought of a low ball bid, but after some recent pleasurable nights with a doctor's wife, feel I may be outbid.

gg

Garpal Gumnut said:

I am unsure, I initially thought of a low ball bid, but after some recent pleasurable nights with a doctor's wife, feel I may be outbid.

gg

Click to expand...

GG

I'm hesitant to ask more but sounds intriguing. I bet Byrnsie will be jumping with joy when the commission cheque clears.

I've got a strong indication that there's some real action pending, I look forward to the New Year for some more surprises.

S

DocK said:

I'm actually inclined to agree with you. I do find however, that if some ex-stormers are reluctant to admit any responsibility for their decisions, so too are some who were not involved too ready to disbelieve the banks are at any fault either. I think there's more than enough blame to go around, if blame must be laid, and it's probably about fair to divide it equally between the three parties involves - ie storm, bank and client. Just speaking for myself here

Click to expand...

Thats how I see it DocK.

Appreciate your honesty.

I don't think anyone is absolving the banks of any blame. the unfortunate situation is that their true involvement is thus far only really known by a few, and probably won't come out until they have their day in court. Again, I hope they feel the full force of the law if/when their they are proven to have done wrong here.

By virtue of the PJC submissions and the countless articles on the whole disaster, we know much more about Storm, their strategy and the clients they conned.

bunyip said:

And what many of us on this thread have said over and over again is that the banks should be brought to account if they can be proven in a court of law to have done anything illegal.
What we’ve also said is that no one party is to blame entirely for the whole mess - not the banks, not Storm, and not the Storm clients themselves. All of them bear some responsibility. Perhaps there are some others who also bear some of the responsibility – e.g. ASIC and the FPA for endorsing a dodgy outfit like Storm Financial.

The people who irk me are those who keep lumping all the blame on to others while refusing to take any responsibility at all for their own actions......three who spring to mind are Frank Ainslie, Harleyquin, and Cassamatis.
Perhaps it can be argued that the banks are another party that’s not taking any responsibility for their actions. I believe this argument would not be entirely correct however, given that some of the banks have made financial settlements to some Storm clients.
Maybe they’ll be made to take even more responsibility – we’ll know sooner or later. I continue to watch with interest.

Click to expand...

Agreed

bunyip said:

DokK

A question for you – when you were seeking financial advice, did you consider consulting a stockbroker to ask what options were available to you for investing directly in the market?

Click to expand...

No, we didn't, because - now I hope you don't have weak bladder control - we thought direct investment in the sharemarket might be too risky! Bloody hilarious isn't it! I did not know that stockbrokers also advised on strategies or investments, but thought they simply acted upon their client's instructions. As I knew I lacked the experience and knowledge to pick individual shares at that time, I did not consider a stockbroker to be an option for us. Back then we thought our best road to financial independence was to access some of the equity we had built up in our home and utilize the tax advantages available through negative gearing into a managed fund or similar. We were in our mid-forties then, had almost totally paid off our home and had been self-employed for about 7 years at that time. We had sunk most of our savings into our business, and had rolled our supers into a smsf and used it to purchase the factory that we run our business out of. The best, maybe the only, good decision we made was to refuse storm's suggestion of selling the factory in order to have more funds to put into the sharemarket. I still don't think we necessarily lacked all common sense, we knew many people following much the same system as us with other FP firms, we simply didn't know what we didn't know. I do think some on this forum lose sight of the fact that this is a stock market forum and its members are not necessarily representative of the population at large. What appears obvious to some re gearing, bubbles, impending crashes etc is not so obvious to the vast majority of the financially ignorant. I agree that it does not necessarily take a lot of time to learn the basics, having now done that myself to an extent, but it is a daunting prospect to many. And yes, we were gullible enough to believe that professionals could be counted on to do what they promised, and that endorsement by FPA and their bankers actually meant something. I used not to be the bitter, twisted and cynical soul that I now am



Although we have been financially devastated by our involvement with storm, at least we are quite a bit younger than most of their clients and have quite a few years of work ahead of us to hopefully make back some of our retirement nest egg. Our business remains profitable, although carbon tax certainly won't help us, and we remain optomistic that the economy will one day start steaming ahead and much moolah will be made. Although I've spent plenty of time kicking myself for being sucked in by Cassimatis, I'm also thankful that at least we saw the writing on the wall in time to pull our investments ourselves before they got anywhere near margin call. Our level of gearing was probably a fair bit lower that the average to start with, before the market fell off the cliff. Hopefully the market will one day trend upwards (consistently) once more and I can put our decimated remaining capital to work.