Storm Financial Group

[Frank Ainslie]

So what did you think had happened to the debt incurred via the lending against the house?

Because we relied entirely on Storm to crunch the numbers we assumed that this house loan had been factored into the LVR equation. The fact that Storm chose not to do so was, in my opinion, a deliberate policy to deceive investors into believing that their portfolios were in better shape than they were. Further, I believe that in many cases borrowing against people’s houses was totally unnecessary and was merely a device to inflate Storm's bottom line.

In our particular case, our borrowing against the house with the assets we already had in cash was totally unnecessary and of no benefit to us whatsoever even if the markets had not been subject to a GFC. Every time we borrowed, Storm lined its pockets. Everything it did therefore was to achieve this end.

People tend to forget that financial advisers have a duty of care and should aim to:
* achieve your goals (not theirs)
* better organise one's finances and retirement planning, and
* work with you to find the right solution for you to make the most from your money.

Storm used us, its clients, to achieve its goals, used our assets to maximize its profits and find the right solution so that they could make the most from our money. As far as its duty of care was concerned, it had little care!

 

[Frank Ainslie]

All about doubling the tax deduction in the first year to prop things up. This allowed them to have extra "free" cash courtesy of the tax dept to get things started.

We took over clients who were still invested (got in very late so no margin call) and without that ability to capitalise that interest in the year following when it all went to mud, the earnings (income only in this case as no gains obviously - so around 4%) became taxable income that had no offset.

Everything and I mean Everything in the strategy was designed to make it hard to exit. EC had this sown up so that all roads led to head office. Getting in was easy - getting out was a nightmare. Once again we seem to touch on a trait of a cult.

Doobsy,

Once again you are on the money! Getting in was easy, getting out was a nightmare!

I do not believe the word 'cult' though aptly describes what Storm was all about. I have spent the last 3 years examining the know facts about Storm and the Banks involved with it. No doubt there are still a number of facts that will only come to light if and when this goes to Court. However, based on what I have uncovered, Storm operated a scam rather than a cult.

The definition of a ‘scam’ is “a fraudulent or deceptive act or operation”. The way Storm operated meets all the criteria.

 

[robz7777]

Because we relied entirely on Storm to crunch the numbers we assumed that this house loan had been factored into the LVR equation. The fact that Storm chose not to do so was, in my opinion, a deliberate policy to deceive investors into believing that their portfolios were in better shape than they were. Further, I believe that in many cases borrowing against people’s houses was totally unnecessary and was merely a device to inflate Storm's bottom line.

No doubt, more Funds Under Management for them and the banks.. Taking out the 0.5% or 1% in management fees..

In our particular case, our borrowing against the house with the assets we already had in cash was totally unnecessary and of no benefit to us whatsoever even if the markets had not been subject to a GFC. Every time we borrowed, Storm lined its pockets. Everything it did therefore was to achieve this end.

You would have seen good returns had the ongoing borrowing to invest been made in a period similar to 2004-07, in theory the strategy could have been successful.. Only Storm failed to consider what returns you required to fund your retirement and the potential risk they were placing you in..

People tend to forget that financial advisers have a duty of care and should aim to:
* achieve your goals (not theirs)
* better organise one's finances and retirement planning, and
* work with you to find the right solution for you to make the most from your money.

Storm used us, its clients, to achieve its goals, used our assets to maximize its profits and find the right solution so that they could make the most from our money. As far as its duty of care was concerned, it had little care!

I find it incredible that the advisers or owners of Storm did not see the potential outcomes of their plans, did they expect to get off scott free when markets eventually went down, if the levels of gearing were high enough it wouldn't have mattered if the market correction was only 20%.. We can only hope that the events of 2008-09 caused significant stress and panic to the owners and advisers of Storm as they realised that they were in serious sh*% for their greed..

 

[bunyip]

You have mentioned chess. I use to be a chess player myself, having studied the game for some years. Nowadays, I play competition poker instead – for fun, that is, because I haven’t got the money to do otherwise. I find that it is the ultimate distraction from the problems that have beset us. Helen and her mother also do the same so it’s a family thing. Bunyip will be pleased to hear this because he can now say, “I told you they were gambling orientated!” I prefer to say that we are challenge driven!
.

I’ve never played poker, so personally I know nothing about the game.
However, one keen player of my acquaintance claims that for a skilled player the game of poker is not true gambling, but rather is a game of skill and strategy, with a better than even chance of winning if the player is sufficiently skilled.

By comparison, the Storm investment model did not offer a ‘better than even chance of winning’.
Someone with say 400k of their own money in the stockmarket could use the strategy to triple or quadruple their market stake by mortgaging their home and borrowing like crazy to fund further market investment. Hold for the long term, and keep adding more fuel to the fire by sinking more borrowed funds into the market through utilising the increasing value of the home and the portfolio to raise further loans.

Such a strategy was a pure gamble because its success was dependent on the impossibility of a continuously bullish stockmarket. The failure of the gamble was guaranteed when the inevitable bear market set in.
The tragedy of the Storm debacle was that investors didn’t seem to understand this gamble they were taking – they didn’t scrutinize the strategy sufficiently to find this out for themselves, and Storm sure as hell wasn’t going to tell them (what salesman ever points out the worst features of the product he’s selling?)
The only way anyone could win from this gamble was to modify the ‘buy and hold’ rules to ‘hold only until you have a decent profit, then bank the profit by cashing out some or all of the portfolio’.
I wonder if any Storm investors were actually astute enough to do this?

How about you, Frank? You claim to be astute – did you ever take any profit off the table and stash it away somewhere safe?

 

[bunyip]

Further, I believe that in many cases borrowing against people’s houses was totally unnecessary and was merely a device to inflate Storm's bottom line.

In our particular case, our borrowing against the house with the assets we already had in cash was totally unnecessary and of no benefit to us whatsoever even if the markets had not been subject to a GFC. Every time we borrowed, Storm lined its pockets. Everything it did therefore was to achieve this end.

Storm used us, its clients, to achieve its goals, used our assets to maximize its profits and find the right solution so that they could make the most from our money.

Gee Frank – it took you long enough to figure out this simple information didn’t it?

Wasn’t it you who accused me of being ‘slow on the uptake’?

 

[bunyip]

People tend to forget that financial advisers have a duty of care and should aim to:
* achieve your goals (not theirs)
* better organise one's finances and retirement planning, and
* work with you to find the right solution for you to make the most from your money.

Storm used us, its clients, to achieve its goals, used our assets to maximize its profits and find the right solution so that they could make the most from our money. As far as its duty of care was concerned, it had little care!

I don’t think anyone on this forum is forgetting that financial planners have a duty of care to their clients.
Nobody except Cassamatis denies that Storm neglected that duty of care.
We all know that Storm were just using their clients as cash cows, without any real concern for the best interests of the clients.

But what you seem to forget is that the duty of care was not only on Storm, it was on you as well.
You had a duty of care to treat your life savings with respect.
You had a duty of care to leave no stone unturned in an effort to find out every scrap of relevant information that could affect the outcome of your venture.

You neglected that duty of care by handing all the responsibility over to Storm and saying ‘OK lads, I believe everything you say – here’s 140 grand for you, I’ll leave everything up to you and I’ll just do whatever you tell me’.

Yes Frank, I know you were paying a licensed financial planning firm for a professional service and a supposedly sound strategy.
And yes, I know you should have been able to expect them to provide exactly that.
But that does not remove your responsibility to thoroughly look into what they were offering before committing millions of dollars to it.

Your complaints about Storm are fully justified - I'd be complaining about them too if I'd been on the receiving end of their shappy treatment of their clients.
They didn’t do the right thing by you.
But you didn’t do the right thing by yourself either.

 

[Julia]

Further, I believe that in many cases borrowing against people’s houses was totally unnecessary and was merely a device to inflate Storm's bottom line.

Frank, this is the exact point some of us have been attempting to make throughout this thread. You say you wanted the modest income of around $45,000 p.a. and you could easily have generated this from your asset base without borrowing anything at all. You were not wealthy by any means, but you had enough to provide you with the income you felt necessary with next to no risk.

I'm genuinely not attempting to point up foolishness or anything else. Hopefully the thread has moved past that. I'm just no more able to understand why you engaged in this whole very complex arrangement when you didn't need to than I was many pages ago.

Re your comment about Storm being a scam rather than a cult, I agree. Usually I think of a scam as being those emails that purport to come from the FBI or some Nigerian advising that we are in line for a wonderful payment from someone we've never heard of. However, I guess the definition can be extended to Storm's apparent capacity to persuade people to engage in such risky stuff.

On "duty of care", I couldn't believe it when the people involved in the enquiry into the financial services industry came out with the apparently remarkable suggestion that in future all advisers must prioritise a duty of care toward their clients. It was as though such a priority was some sort of revelation!

 

[Solly]

I acknowledge the duty of care statements but to me primary issues are the risk assessment and evaluation undertaken by the Stormers regarding the Storm gearing strategy. I'm sure not many would have sat down and completed a thorough Risk Impact Grid or Probability Chart to assess the probability of occurrence and impacts of risks. Maybe many, like Frank, have key competencies in other areas and not in the "dark arts" of Financial Planning and wealth accumulation and creation, after all that is why the Stormers were seeking professional guidance in this area.

I believe many could not identify and evaluate the risks that were involved especially if they lacked an in depth understanding of how the model worked as presented. I'm not sure how Stormers could properly determine likelihood, determine consequence, estimate the level of risk and prioritise risks when not all the data presented to them was accurate, especially as it would appear around the in-house portfolio software monitoring system safeguards. I'm sure there were very limited ways and opportunities for Stormers to identify and evaluate treatment options and implement treatment plans when things went awry. I'm sure these responsibilities were innately transferred to Storm as a risk mitigation strategy when they accepted the advice.

Just another comment about the 80/20 Pareto principals previously mention in this thread, I have asked one Stormer about why they still pursued the Storm strategy after as it appeared many walked away after seeing the investment overview. Their response was that they thought that they were on a sound footing as it was not mainstream and that they were part of the select few who were following a new way to wealth creation. I wonder what deliberate techniques were used to reinforce the sales pitch.

 

[bunyip]

Frank, this is the exact point some of us have been attempting to make throughout this thread. You say you wanted the modest income of around $45,000 p.a. and you could easily have generated this from your asset base without borrowing anything at all. You were not wealthy by any means, but you had enough to provide you with the income you felt necessary with next to no risk.

I'm genuinely not attempting to point up foolishness or anything else. Hopefully the thread has moved past that. I'm just no more able to understand why you engaged in this whole very complex arrangement when you didn't need to than I was many pages ago.

Julia makes a good point here, Frank.
You must have been asked at least a dozen or more times.....’Why did you mortgage your home and borrow a pile of money to sink into the stock market when, without any borrowing at all, you could have easily generated sufficient passive income to fund a very comfortable retirement’?
You’re offended whenever someone suggests that greed influenced you. Yet you’re unable to explain any other motive for your actions.

I can understand the thinking of someone at or approaching retirement age whose financial position was insufficient to fund the sort of retirement they wanted. I can see how Storm appeared to offer a solution to their problem.
Different story though with someone like you who was in the fortunate position of being able to enjoy a comfortable self-funded retirement. I still shake my head in disbelief at your actions.

When you first appeared on this forum you claimed you were here ‘to tell it how it was’.
OK then– tell it how it was. What influenced your decision to mortgage your home and commit millions of dollars (much of it borrowed money) to the stock market when you had absolutely no need to do so?

Of course I respect your right to keep this information to yourself if you wish. But you did claim you were here to ‘tell it how it was’.

 

[DocK]

I acknowledge the duty of care statements but to me primary issues are the risk assessment and evaluation undertaken by the Stormers regarding the Storm gearing strategy. I'm sure not many would have sat down and completed a thorough Risk Impact Grid or Probability Chart to assess the probability of occurrence and impacts of risks. Maybe many, like Frank, have key competencies in other areas and not in the "dark arts" of Financial Planning and wealth accumulation and creation, after all that is why the Stormers were seeking professional guidance in this area.

I believe many could not identify and evaluate the risks that were involved especially if they lacked an in depth understanding of how the model worked as presented. I'm not sure how Stormers could properly determine likelihood, determine consequence, estimate the level of risk and prioritise risks when not all the data presented to them was accurate, especially as it would appear around the in-house portfolio software monitoring system safeguards. I'm sure there were very limited ways and opportunities for Stormers to identify and evaluate treatment options and implement treatment plans when things went awry. I'm sure these responsibilities were innately transferred to Storm as a risk mitigation strategy when they accepted the advice.

Just another comment about the 80/20 Pareto principals previously mention in this thread, I have asked one Stormer about why they still pursued the Storm strategy after as it appeared many walked away after seeing the investment overview. Their response was that they thought that they were on a sound footing as it was not mainstream and that they were part of the select few who were following a new way to wealth creation. I wonder what deliberate techniques were used to reinforce the sales pitch.

One aspect that I was reminded of recently was the constantly reinforced message that the sharemarket would always recover from any "dips" and was far superior over a long-term timeframe to any other asset class. Many charts showing the very longterm upwards trend were displayed as proof that despite tech bubbles, 9/11 attacks etc - the very longterm trend of the market was forever upwards. Indeed, if you look at a chart from 1990 to 2007 it looks just lovely, doesn't it? A fall of the magnitude that then happened was clearly not envisaged nor tested for! The fact that the Storm method involved investment in the broad market rather than in individual shares was promoted as being an extra degree of safety as one wasn't exposed to any individual company. Naturally the seminars etc neglected to mention that it was possible to do this via AFIC, STW, Argo etc -- that would not have been in their interests. (And yes, more fool us for not finding out this information for ourselves).

Likewise, several charts and examples were provided showing the opposite for property. Or if not exactly opposite, "proving" that investment in property was inefficient when compared to investment in shares. The fact that their target market almost all owned their own homes was used to demonstrate that most of us were already "overweight" in property and needed to rebalance our investments by accessing the equity that was locked away in our family homes (and therefore was very lazy and needed to be put to work) in order to spread our investments over more than just the one inefficient asset class. The SOAs reinforced this message with many graphs and pie charts demonstrating the % of wealth held in property before taking their advice, vs the much more balanced graph that would result. I'd appreciate Doobsy's input here, but I somehow suspect that most FPs wouldn't include the family home when looking at a distribution of investments between asset classes?

Doobsy is quite correct in that the home loan was never included when discussing or looking at LVRs - only the margin loan was used for this purpose. The SOA would demonstrate that a very prudent LVR of 55% was in place - but this didn't include the home loan. Unless one was very aware of what one owed, it would be very easy indeed for some, particularly those who had been with Storm for many years, to lose track of exactly how exposed they were to any market falls - as history has shown all too clearly.

It was indeed a very slick sales pitch designed at instilling fear that we'd done the wrong thing by paying off homes rather than investing in the sharemarket, and that inflation etc would see us unable to fund our retirements unless we "rebalanced" our assets. Cassimatis, may he rot in hell, did an excellent job of anticipating any stumbling blocks and presenting "proof" that his method was revolutionary and vastly superior to the run-of-the-mill strategies that were mostly employed by other FPs.

 

[doobsy]

Dock

Each planner will look at the family home in different ways. My approach has always been to consider it depending on the circumstances.

People need somewhere to live. An average person I will ignore the exposure but certainly consider any debt. We have also found that those who say they will downsize are lying. If they sell a $1M house, they will buy a $1M unit. Downsize in space, not value is the norm.

So the average person I will always include listed and if appropriate unlisted property in their strategy.

Someone sitting on above average value property (whether by design or luck) as the family home I would probably underweight in their investments but still have some.

Those who have multiple rental properties and are most comfortable with this sort of property I might not give them any more exposure although I find this causes trouble as they then compare "their" rentals with "our" investment portfolio. As they don't value the rental every day like their share/mgd funds are, this can cause friction at times. This also applies to clients where we manage super and they run their own investment shares directly.

Is money sitting in a family home lazy - absolutely but it provides a return by default. By this I mean should you borrow back against it that is a cost. Currently with interest rates where they are the cost is 6.5% - therefore that is the implied return. If you don't re-draw then you don't have that cost. If you can invest the money and get a better return than that then you pick up the "DIFFERENCE". This is important - if you did put it in shares and did get 10%, that is not what you earnt. You earnt 3.5% (ignoring tax deductions etc). SO the argument comes down to is it worth taking the additional risk for the return. Me personally - I would want more than 3-5%.

 

[Julia]

One aspect that I was reminded of recently was the constantly reinforced message that the sharemarket would always recover from any "dips" and was far superior over a long-term timeframe to any other asset class.

And probably that's actually true over the very long term.

Asset classes are cyclical. I wouldn't be buying property now as an investment but did very well from it in the period of high inflation in the 80's. Certainly interest rates were high but so were rents, and capital values doubled in as little as a year in parts of NZ.

I'd appreciate Doobsy's input here, but I somehow suspect that most FPs wouldn't include the family home when looking at a distribution of investments between asset classes?

Doobsy has explained his approach. I would include the family home when looking at an asset base. There are many people who are only 'comfortable' investing in property and have several IPs plus the home they live in. Imo by declining to take advantage of the stock market when it's doing well, they're missing an opportunity, but I get their sense of comfort from bricks and mortar.

Doobsy is quite correct in that the home loan was never included when discussing or looking at LVRs - only the margin loan was used for this purpose.

To me that just makes no sense. The debt of the home loan didn't just evaporate.

I'm assuming any statements of LVR came from Storm? i.e. if the margin loan was with, say, Macquarie, I'd expect the LVR statements would be on Macquarie's letterhead, thus making it clear that LVR only referred to the margin loan and therefore the home loan was an additional debt.

The SOA would demonstrate that a very prudent LVR of 55% was in place - but this didn't include the home loan. Unless one was very aware of what one owed,

I'm not trying to be either critical or confrontational, but I simply don't understand how anyone, when dealing in debts of hundreds of thousands, could be unaware of what they owed.

 

[doobsy]

There has been much talk of whether EC and co could see the "black swan" coming.

With the help of the web archive I have managed to dig out some of the newsletters that my ex boss put out around that time. This was published in the local paper. All easily and readily available for Joe Public to read. He copped quite alot of criticism from in and out of the industry pre crisis.

26 March 2007
Last week I mentioned the demise of lenders in the sub prime loan area of the US. As at the time of writing there are now 42 lenders who are now defunct and a further 12 that are ailing.
Why should the lending problems in the US be of concern to us in Australia? Whether we like it or not our financial markets are inextricably linked.
The plankton theory of financial markets is that you need small investors to ultimately feed the big investor. If the first home buyer (the plankton) disappears due to tighter lending practices, then you do not have a buyer that allows the existing home owner to experience an escalation in price. Until recently the US consumer has been using the increased value in their home as an ATM. The home equity withdrawals have help drive the US economy and ultimately corporate profits (share prices).
The other problem that occurs when an economy has a prolonged period of prosperity is that people tend to become over-confident. Prudent spending and investment habits are forgotten in the belief that the good times will last indefinitely.

When the upward cycle is broken there is a rush to unwind the investments that were once considered a good thing (remember the tech boom and subsequent bust). Unfortunately what happens is that the speculative investments can’t be sold as the market for them has evaporated (people lose their appetite for risk), so to cover the loan liabilities the quality investments are cashed in.

Will this happen this time? The sharemarket volatility of the past few weeks is an indicator that investors are jittery but are not yet convinced the good times are over. It is a delicate balancing act. If the US Federal reserve can stop the rot in the sub prime loan market then there will still be enough “plankton” in the system, but if it tips too far then confidence will be lost and this will flow through to a significant correction in sharemarkets.
In my opinion it is best to adopt a diversified approach to investing. If you have made good profits in recent years consider realising some of those profits and paying off debt or re-balancing your portfolio. In the long run the prudent investor will enjoy a reasonable level of return with lower volatility.

14 May 2007
Jeremy Grantham has recently completed a 6 week global tour (which included Australia). His observations from this tour were the topic for discussion in his latest letter to clients.
The shortened version of his letter is “Everything is in bubble territory,” he says. “Everything. The bursting of this bubble will be across all countries and all assets.”
So for those investors who like to err on the side of caution, the advice is simple: If you have done well out of the market consider taking some profits and re-distributing these funds into fixed interest and property. For those with borrowings, look to reduce your level of debt with the realised profits.

18 June 2007
Regular readers will know that I have been cautious on the direction of the share market for exactly the same reason. Investors chose to ignore or are ignorant to the fact that share markets do not rise at a rate of 20% plus per annum. At some point financial gravity will kick in and markets will come back to earth with a thud. Unfortunately the higher markets go, the more exuberant the investor becomes and the more foolish the investment activity. When this current market cycle unwinds we will hear the horror stories of investors who over-borrowed to invest in what they thought were a sure thing.

29 October 2007
A friend recently said “I see you are still writing your doom and gloom articles on the share market.” My response was “It is more words of caution.”

20 years of financial planning have taught me that markets deserve great respect. The Financial Review recently reported that margin lending firms recorded their biggest ever quarter, for the period ended 30 June 2007.
The article stated the average margin loan interest rate is 9.5% per annum. The 50 year average return from the Australian share market (growth and dividends) is around 11 - 12%. The past 4 years has seen returns of 20+% per annum, but no reasonable market participant believes this will continue indefinitely. So even if markets return to the average, you will be lucky to make a net 2% return. But we all know that averages are achieved after a several periods of rise and fall.
Statistically the odds of a fall are getting greater and yet the rush to borrow money to invest in a mature market has reached record levels. The herd mentality is alive and well.

For those who have borrowed excessively to invest in the sharemarket it is timely to heed the words of caution by people who have been there and done that. The party will not last forever.

 

[doobsy]

Thought I would also mention that Nassim Taleb wrote a book called "The Black Swan", a hard read but in it is a wonderful analogy of how markets work.

Taleb points out that, for the unsuspecting Thanksgiving turkey, life seems good. They're well-fed and kept for days on end. They're living the life. Each day of feeding boosts their confidence in being fed tomorrow. The problem, of course, is that all that fattening and making the turkey happy are a means to an end – the end being THE END for the turkey. Not only is he not getting fed that day, he will actually be the one being fed to others.

 

[Frank Ainslie]

I acknowledge the duty of care statements but to me primary issues are the risk assessment and evaluation undertaken by the Stormers regarding the Storm gearing strategy. I'm sure not many would have sat down and completed a thorough Risk Impact Grid or Probability Chart to assess the probability of occurrence and impacts of risks. Maybe many, like Frank, have key competencies in other areas and not in the "dark arts" of Financial Planning and wealth accumulation and creation, after all that is why the Stormers were seeking professional guidance in this area.

I believe many could not identify and evaluate the risks that were involved especially if they lacked an in depth understanding of how the model worked as presented. I'm not sure how Stormers could properly determine likelihood, determine consequence, estimate the level of risk and prioritise risks when not all the data presented to them was accurate, especially as it would appear around the in-house portfolio software monitoring system safeguards. I'm sure there were very limited ways and opportunities for Stormers to identify and evaluate treatment options and implement treatment plans when things went awry. I'm sure these responsibilities were innately transferred to Storm as a risk mitigation strategy when they accepted the advice.

Just another comment about the 80/20 Pareto principals previously mention in this thread, I have asked one Stormer about why they still pursued the Storm strategy after as it appeared many walked away after seeing the investment overview. Their response was that they thought that they were on a sound footing as it was not mainstream and that they were part of the select few who were following a new way to wealth creation. I wonder what deliberate techniques were used to reinforce the sales pitch.

Hi Solly,

I think at times we are seeking to make the Storm fiasco more complicated than needs be.

Some on this forum are still failing to (or do not want to) grasp an important fact. We paid a lot of money to Storm so we had every right to expect expert sound financial advice. Further, we had no reason not to trust such advice.

IJUSTKNEWIT posted the following question recently:

“Well Frank no one seems to want to take your challenge based on the fact the are not legal people and admit they know little about the law. So we must assume that when needed those same people seek out a lawyer or someone that is familiar with the law when they need help. Should they not be self educated in Law and know what they are signing, the same way the Investors should have been self educated in Financial Planning and knew what they where signing?"

This, to my mind, is one of the most pertinent questions asked on this forum! When one employs a professional in any given field, one is relying entirely on that person’s advice because that professional is selling his or her expertise. Therefore, to claim, as some have, that we were foolish to trust such individuals is a nonsense. We relied on financial advice from qualified people in much the same way one would rely on any other professional, be they a lawyer or otherwise.

If a lawyer represents you case poorly in a court of law there is little you can do about it. You are entirely in his hands and you certainly do not any time try to tell him about the law. Indeed, how could you because he, not you, is the expert. That's what you pay him for!

There is no difference where a financial adviser is concerned. You rely entirely on his or her knowledge of the market place and if that financial adviser's advice is poor then you must wear the consequences. However, the Storm saga is not about poor advice. If it were, the directors of Storm and the Banks involved with Storm wouldn’t be in the dock.

As professional financial advisers, Storm’s job was to evaluate risks and be mindful of our needs, not theirs! Storm and the Banks as financial advisers and institutions had a duty of care that is undeniable. There is no way a person that had no investment nous (most of us) would deduce that the Storm strategy was 'high risk'. In fact Storm did everything to convince its clients otherwise. Storm had to because their clients wouldn't have entrusted their money with Storm if it hadn't!

Many professional people put their trust in Storm. I was one of them. In our own fields we are considered experts (I have the qualifications and cv to prove it), but it doesn’t follow because we are experts in one area, it necessarily follows that we have the necessary acumen in another.

My field is international logistics. If someone were to entrust their freight forwarding needs to me, informing me that the cargo in question was considered "dangerous cargo", and I omitted to tell the shipping company, whose fault would that be? Further, if as a result a fire broke out on board a ship caused by such cargo, should I be blamed or my client. To therefore imply that the client must also share part of the blame in such circumstances (as some uninformed people on this forum claim) is a ludicrous notion. The fault would remain entirely mine for doing the wrong thing. How could my client possible know that I wouldn't do the right thing by that client?

That’s why I cannot go along with some Stormies who somehow or other hold themselves to blame in all this. "How could you possibly that the people you were dealing with were fraudsters?" They lied to us, deceived us, and used our assets for their own personal gain. They are entirely to blame, not us, not you!

For those that still insist despite the evidence that we should share some of the blame, please explain why you (who have already admitted that you know little about the law) would place your trust entirely in the hands of a lawyer, but would treat another professional such as a financial adviser differently? If you can give me a satisfactory answer, I might take the comments by people such as Bunyip seriously! He hid from view when this question was first asked. Maybe he would now care to enlighten us with his wisdom???

 

[DocK]

To me that just makes no sense. The debt of the home loan didn't just evaporate.

I'm assuming any statements of LVR came from Storm? i.e. if the margin loan was with, say, Macquarie, I'd expect the LVR statements would be on Macquarie's letterhead, thus making it clear that LVR only referred to the margin loan and therefore the home loan was an additional debt.

Statements from the margin lender would naturally only deal with the lvr of shares held as security against the margin loan only - that is quite normal and to be expected. Discussions, reviews and SOAs from Storm however could reasonably, and I feel certainly should have included the home loan debt when portraying a client's overall exposure to the market. In effect, I guess I'm saying that both the individual lvr of the margin loan and the overall lvr of the client's total debt/investment should have been made clear in both the SOA and at any review.

I'm not trying to be either critical or confrontational, but I simply don't understand how anyone, when dealing in debts of hundreds of thousands, could be unaware of what they owed.

I'm sure I'm not the only ex-storm client who was aware (all too painfully at times) of their total debt - but clearly there were also many older, less computer literate clients who were either confused about what the stated lvr on their soa covered, or didn't understand the jargon sufficiently to work it out. I agree with your sentiment, however can also understand how some may have become unaware of the full extent of their predicament until it was too late to recover.

 

[Solly]

"Storm Financial founders sue indemnity insurers for $750k

THE former principals of failed Storm Financial have sued their insurance company to recover nearly $750,000 they maintain should have been paid to cover legal bills.

Emmanuel and Julie Cassimatis allege in a claim filed in the Queensland Supreme Court that Axis Specialty Europe has not honoured their policy aimed at protecting company directors and officers"

More by Anthony Marx @ couriermail.com.au

 

[Judd]

More and more the posts confirm my uneducated opinion that individuals have a different approach to advice and/or risk.

Frank has indicated that because he, and others, consulted a (qualified) financial adviser, who said it was a good strategy to draw on the family home to invest, it was OK. And that is a valid position.

Others, like me, who has only once consulted an FP, told them to shove it when the same was suggested. Having sweated blood and good money to get the title deeds out of the bank's clutches there was no way on earth I was going to use the roof over my head as a piggy bank. And that is also a valid position.

doobsy, indicates that it depends...... Again, a valid position.

I just get the horrible feeling that the efforts by various parties to "standardise" financial advice in the future is doomed to failure. I hope not but it is my gut feeling.

Way too many individual variables, much regulation and the on-cost will make it very hard for those who want financial advice (and notice I typed want as opposed to the inference from the FP bodies/lobbies that the 70% of the population who don't seek advice, need it - maybe a number of people are happy as they are and don't want their life being complicated) to be able to afford it.

 

[bunyip]

For those that still insist despite the evidence that we should share some of the blame, please explain why you (who have already admitted that you know little about the law) would place your trust entirely in the hands of a lawyer, but would treat another professional such as a financial adviser differently? If you can give me a satisfactory answer, I might take the comments by people such as Bunyip seriously! He hid from view when this question was first asked. Maybe he would now care to enlighten us with his wisdom???

Hid from view? I don’t think so, Frank old man, I simply ignored the question because I thought it was stupid and irrelevant and it showed that the person asking it lacked the capacity to comprehend the significant differences between engaging a lawyer to represent you in a legal matter, and committing vast sums of money, much of it borrowed, to a business investment.
With the business investment you have plenty of opportunity to thoroughly scrutinize the proposal before committing millions to it. This holds true regardless of whether you do it all yourself or you go through an investment adviser. Pretty much all the information you need is available free on the internet.
You can do cash flow projections, risk assessment, anything relevant to your proposed business can be investigated thoroughly if you commit a bit of effort to it.

This is a very different situation to being represented by a lawyer – you can’t just jump on the net and have access to the same amount of law-related information as what’s available about share markets, margin loans, and general investment matters.

There are very good reasons to thoroughly look into any investment before proceeding, the most obvious being that if you don't then you greatly increase the likelihood of getting burnt.
If you fail to look into it, then more fool you. Maybe you’ll be more careful next time.

Nine out of ten people walked away after looking at the Storm proposal. If they could see the pitfalls, then you would have been able to too.....IF you’d put a bit of effort into looking instead of being so gullible as to blindly believe everything Storm told you.
If you’d handled your stock market investment project with similar thoroughness to which you handled your shopping center project, then you would have been among the 90% who rejected Storms outrageously reckless gamble. You could have been sitting on the sidelines with the rest of us interested observers.

By the way, Frank, we’re still waiting for you to explain why you mortgaged your home and borrowed a million or so dollars, when you could have easily funded a very comfortable retirement without borrowing a cent.

 

[Julia]

Statements from the margin lender would naturally only deal with the lvr of shares held as security against the margin loan only - that is quite normal and to be expected. Discussions, reviews and SOAs from Storm however could reasonably, and I feel certainly should have included the home loan debt when portraying a client's overall exposure to the market. In effect, I guess I'm saying that both the individual lvr of the margin loan and the overall lvr of the client's total debt/investment should have been made clear in both the SOA and at any review.

I totally agree. Should I deduce from your saying "the overall LVR should have been made clear in the SOA and any subsequent review" that it wasn't so stated?
Please don't answer if the questions seem intrusive, but I'd be interested to know if you received regular statements, including LVR from the margin lending provider?
Nothing at all from Storm stating your overall position?

If not, did you ask for these?


Frank:

Some on this forum are still failing to (or do not want to) grasp an important fact. We paid a lot of money to Storm so we had every right to expect expert sound financial advice. Further, we had no reason not to trust such advice.

This is just yet another copy and paste of what you have already said dozens of times.
I think we are all aware that you have no intention of acknowledging the need for personal evaluation of risk and the application of basic common sense.

So perhaps, if you have nothing new to add, accept that your continued repetition of the same statement is a bit pointless.

The comments from others, on the other hand, about the LVR relating to just the margin loan rather than the overall client position, is interesting and I thank the people who have discussed this.