Storm Financial Group

[Garpal Gumnut]

The Cassimatis' are headed to court on May 15th as they attempt to have charges laid by ASIC thrown out.

From the Townsville Bulletin.

http://www.townsvillebulletin.com.au/article/2012/02/17/306591_news.html

Cassimatises' bid to avoid court battle

THE husband and wife team who once ran Townsville's now-defunct Storm Financial are tentatively set to face trial on April 29 next year over charges of corporate wrongdoing.

But Emmanuel and Julie Cassimatis have been granted one last chance to water down or even scuttle the proceedings.

The Cassimatises maintain that ASIC had frequently reviewed Storm's financial planning model and never raised an objection to it since the business started in 1993. They say factors beyond the company' control had a severe impact, including the global financial crisis and the sell down of Storm investment portfolios by banks, which allegedly failed to issue margin calls.

It will be interesting to see how it goes for them in court, a judgement in their favour will increase the pressure on the banks. Should it go against them they will face court again in 2013.

The Storm investors will not get a say for some time yet in the Levitt's action against the Banks, Macquarie, CBA, and BOQ as mediation continues.

From the Townsville Bulletin

http://www.townsvillebulletin.com.au/article/2012/02/18/307011_news.html

Hope for Storm stricken

Mr Levitt said lawyers had evidence to suggest margin lender Macquarie Bank struck deals with Storm Financial from February 15, 2005, and that the Commonwealth Bank's margin lender Colonial Geared Investments struck an agreement from May 18, 2007.

Levitt Robinson has mounted class actions against Macquarie, the Commonwealth Bank and Colonial First State Investments and is preparing to launch another against Bank of Queensland.

Mr Levitt said ASIC was working with Levitt Robinson modelling potential damages claims ahead of court-ordered mediations due to occur with the Commonwealth and Macquarie banks in Sydney next week.

gg

 

[Solly]

The Cassimatis' are headed to court on May 15th as they attempt to have charges laid by ASIC thrown out.

From the Townsville Bulletin.

http://www.townsvillebulletin.com.au/article/2012/02/17/306591_news.html


It will be interesting to see how it goes for them in court, a judgement in their favour will increase the pressure on the banks. Should it go against them they will face court again in 2013.

The Storm investors will not get a say for some time yet in the Levitt's action against the Banks, Macquarie, CBA, and BOQ as mediation continues.

From the Townsville Bulletin

http://www.townsvillebulletin.com.au/article/2012/02/18/307011_news.html



gg

GG

The seeking of a summary judgment or a strike out will be interesting to follow.
I agree with your view regarding judgement.

S

 

[DocK]

GG

The seeking of a summary judgment or a strike out will be interesting to follow.
I agree with your view regarding judgement.

S

In the (unlikely imo) event that they are successful it won't do much for ASIC's already shaky credibility.

 

[Frank Ainslie]

Ping: Frank are you still an active contributor to this forum ?

I have noticed you have been rather subdued since I noticed a recent post of yours disappeared.

My colleagues and I are eager to know if your new forum is active.

S

Hi Solly,

Pong! I am still looking in on the ASF from time to time but I am somewhat ties up at the moment with other matters (ASIC on the subject of professional indemnity insurance for one)- hence no postings. This has also delayed the formulation of my new forum but I'll let you have details of such in due course.

Just a quick observation regarding Manny Cassimatis' allegations where ASIC is concerned. There is no doubt that ASIC has much to answer for in all this because it failed to see the dangers inherent in Storm's financial model, particularly in a falling market. ASIC will argue that it wasn't its job to do so at the time. Whatever, ASIC in my opinion has shown itself to be a "toothless tiger" that is far from being independent. For one, I believe that it is influenced by political considerations and has a tendency to go soft on banks, particularly the CBA. Further, it is run by short-sighted bureaucrats that are reactive rather than proactive. Therefore, nothing will change until ASIC itself is investigated - and pigs will fly!

 

[Frank Ainslie]

Ping: Frank are you still an active contributor to this forum ?

I have noticed you have been rather subdued since I noticed a recent post of yours disappeared.

My colleagues and I are eager to know if your new forum is active.

S

Hi Solly,

Pong! I am still looking in on the ASF from time to time but I am somewhat ties up at the moment with other matters (ASIC on the subject of professional indemnity insurance for one)- hence no postings. This has also delayed the formulation of my new forum but I'll let you have details of such in due course.

Just a quick observation regarding Manny Cassimatis' allegations where ASIC is concerned. There is no doubt that ASIC has much to answer for in all this because it failed to see the dangers inherent in Storm's financial model, particularly in a falling market. ASIC will argue that it wasn't its job to do so at the time. Whatever, ASIC in my opinion has shown itself to be a "toothless tiger" that is far from being independent. For one, I believe that it is influenced by political considerations and has a tendency to go soft on banks, particularly the CBA. Further, it is run by short-sighted bureaucrats that are reactive rather than proactive. Therefore, nothing will change until ASIC itself is restructured and its employs people that have the capacity to understand the needs of the financial sector and implement changes that also protect investors fully. You can include my remarks where this Government is concerned as well.

 

[Frank Ainslie]

HQ - Is it just me or does 90% of what everyone says end up returning to BAD ADVICE. Is that the Stormies fault, no, could they have looked into things further, yes with a but, the but being should they need to.

I do however want to clarify a couple of points. The Storm strategy was legal. It was a legitimate investment strategy. SO no ASIC did not have a problem with it, no FPA did not have a problem with it, no the banks did not have a problem with it (even though I am still lost about how Stormies some how make a link that their 25 year old mortgage person at a bank should be able to tell them to or not to proceed with advice given by a firm with 20 years of industry experience)

Where does that leave us? It leaves us with a high risk strategy sold as low risk. It leaves us with "commoditised" advice that was given to everyone. It leaves us with advisers who did know the risks downplaying them then not acting to protect their clients when S hit fan. It leaves us with clients thinking their advisers were acting in their best interests.

Lets get back to some level of reality. The thread is Storm and it is Storm that is still very much the bulk of the reason clients are wiped out.

Excellent summation Doobsy!

However, without the banks as willing partners, Storm would not have been able to implement their grand design. It will be up to our lawyers now to prove that Storm's arrangements with the principal banks, the CBA Macquarie Bank and the BOQ were not aboveboard. Does anyone here for instance really believe that the CBA would have come up with a resolution scheme costing some $300 million if that Bank didn't have a case to answer? As you say, Doobsy, "Let's get back to some level of reality!"

Have a good day!

 

[Tysonboss1]

Excellent summation Doobsy!

However, without the banks as willing partners, Storm would not have been able to implement their grand design. !

Without the willing participents with dollar signs and luxuary retirement dreams rolling round there eye balls they likewise would not have been able to implement there plan.

Storm and the storm investors together set off on a mission to make mega leveraged returns, and unfortunatly for them it back fired.

The Banks simply set off to make a small interest margin on the loans provided,

They say when the tide go's out you see who was swimming naked, I think you will find the stormies and the storm founders were all swimming naked, But with all their own safe guards the banks were wearing wet suits.

 

[SJG1974]

Without the willing participents with dollar signs and luxuary retirement dreams rolling round there eye balls they likewise would not have been able to implement there plan.

Storm and the storm investors together set off on a mission to make mega leveraged returns, and unfortunatly for them it back fired.

The Banks simply set off to make a small interest margin on the loans provided,

They say when the tide go's out you see who was swimming naked, I think you will find the stormies and the storm founders were all swimming naked, But with all their own safe guards the banks were wearing wet suits.

Tyson, haven't you been reading the posts from Storm victims like Frank??....Frank has told us he didn't have dollar signs rolling around in his head. Far from it in fact.

His main goal was to protect and preserve his capital. Not to make millions, but just protect what he had built up over hius years in business.

Frank paid his huge fees for simple financial planning advice! He only needed to live on $45K p.a., and with well over $1m to invest (before gearing) he assessed that the risk and potential returns from bank deposits and Allocated Pensions were not attractive enough.

So despite having an understanding of debt and shares, and the risks inherent in each, he decided the best way to protect his money was to double gear into shares via the Storm strategy.

 

[SJG1974]

As you say, Doobsy, "Let's get back to some level of reality!"

If only you would heed your own advice Frank. If only.

 

[jjtebj12]

Cannot wait until the evidence is tabled and in the public domain for all to see. Then and only then will the real story be told! Not assumptions that appear on this forum! The finish line in near.

 

[Solly]

Hi Solly,

Pong! I am still looking in on the ASF from time to time but I am somewhat ties up at the moment with other matters (ASIC on the subject of professional indemnity insurance for one)- hence no postings. This has also delayed the formulation of my new forum but I'll let you have details of such in due course.

Just a quick observation regarding Manny Cassimatis' allegations where ASIC is concerned. There is no doubt that ASIC has much to answer for in all this because it failed to see the dangers inherent in Storm's financial model, particularly in a falling market. ASIC will argue that it wasn't its job to do so at the time. Whatever, ASIC in my opinion has shown itself to be a "toothless tiger" that is far from being independent. For one, I believe that it is influenced by political considerations and has a tendency to go soft on banks, particularly the CBA. Further, it is run by short-sighted bureaucrats that are reactive rather than proactive. Therefore, nothing will change until ASIC itself is restructured and its employs people that have the capacity to understand the needs of the financial sector and implement changes that also protect investors fully. You can include my remarks where this Government is concerned as well.

Thanks Frank,
I look forward to further details of access to your site.
S

 

[Harleyquin]

Jjte well said and I agree.

Interesting headlines today re Pirate party. Love some of the headlines eg Bunch of Plankers.

 

[jjtebj12]

In some weird way I hope this doesn't settle at Mediation as I want to see the CBA's Ralph Norris and Co cross examined under oath so the real truth can be revealed. When this occurs, then and only then will the public know the truth. September isn't that far away to wait for justice. The Banks thought we would go away and accept their pittance of a settlement offer. Fortunately for us "it's not about the size of the dog in the fight - it's the fight in the dog"!!! Good luck to all involved in Mediation tomorrow.

 

[bunyip]

Cannot wait until the evidence is tabled and in the public domain for all to see. Then and only then will the real story be told!
Not assumptions that appear on this forum!

Assumptions?

Doobsy has expressed his opinions as a financial planner.
Right or wrong, his opinions are carefully considered before he makes them.

Most of the other opinion on this forum in regard to the banks is simply that they're not solely responsible for the losses of Storm clients, but they may be partly responsible, and they should pay a price if a court of law finds them guilty of any illegality.

I don't see any assumptions there - just fair and balanced viewpoints.

There seems to be a belief among you Stormers that we who weren't affected by the Storm debacle are trying to give the banks a clean bill of health.
Well we're not - they're not above the law, and they should be penalised if they’ve broken the law.

 

[Frank Ainslie]

Part 1 of my letter to Chris Bowen regarding PI insurance and ASIC's responsibilities under Section 912B of the Corporations Act for administering such.

The Hon. CHRIS BOWEN
Minister for Financial Services, Superannuation and Corporate Law
PO Box 6022
Parliament House
Canberra ACT 2600

22nd February 2012

Dear Sir,

Re: Professional Indemnity Insurance – “Lessons still to be learnt!”

Past events where Storm Financial and the Banks are concerned have demonstrated to me that this Government and ASIC will behave wisely only when they have exhausted all other alternatives.

I together with thousands of others lost our lifesavings when Storm Financial collapsed in early 2009. I have spent the time since then delving into what brought about the failure of this major financial advisory firm and the reasons why so many lost everything. Based on the evidence at hand, the blame does not lie fully with Storm Financial and the Banks closely allied with that firm. Rather, it must be shared in equal part by our Government and ASIC - the consumer credit regulator.

At the time that we and countless others, acting on Storm’s advice, invested in the market place, we were under the impression that we were protected by statutory regulations and compliance systems that would effectively protect us from malpractice. Sadly, we were mistaken. The simple truth is that this and past Governments have failed in their duty of care to the Australian people because despite numerous instances of past malfeasance in the financial sector occurring at regular intervals, Governments have let this situation continue to fester unabated. Now, with the collapse of Storm and other financial institutions, the Government has at last seen fit to introduce reforms that are designed to restore investor confidence and reassure one and all that another “Storm” cannot occur again!

Believe me, another “Storm” is just over the horizon if this Government and ASIC continue with their “liasse-faire” economic doctrine of non-interference in commerce beyond the minimum necessary for a free-enterprise system to operate according to its own economic laws. Nowhere is this more evident than with regard to “professional indemnity insurance”.

I have written to ASIC on a number of occasions regarding our experiences when attempting to claim against Storm’s insurers, and the deficiencies that still exist today with regard to “professional indemnity insurance” despite the new regulations that now exist.

Attached, you will find copies of ASIC’s letters I have received in response to mine on this subject. These letters, dated 17th March 2011 and 13th February 2012, explain the requirements under the regulations as far as taking out PI insurance cover by financial advisers is concerned. Unfortunately, in its correspondence ASIC not only fails to answer my queries satisfactorily, but also clearly displays an approach that is ineffectual when it comes to, what I consider to be, one of the most important issues in the financial sector today; namely adequate professional indemnity insurance. This type of insurance cover for financial advisers, that should effectively protect investors, has been ineffectual in the past and will continue to be inadequate if nothing is done to rectify the situation. Quite frankly, the recent changes in the regulations in this regard simply do not go far enough!

With respect, this “head in the sand” approach to professional indemnity insurance by this Government as well as ASIC just begs for “more of the same” because it fails to address the real issue – namely professional indemnity insurance cover that fully protects investors’ rights. You can only have an effective PI insurance cover if it contains a “run-off” clause.

The argument that PI insurance is a protection afforded to the party taking it out rather than to a third party doesn’t wash! Investors need to know that sufficient assets/funds are available if any financial adviser they employ transgresses. Effective and adequate PI insurance offers them that assurance.

Following the collapse of Storm Financial, we, the Storm investors, had to wait more than a year before we could ascertain the name of Storm’s insurers, who were AIG, because ‘Worrells’ (the appointed liquidator) would not release such to us. Then, I found that when I lodged a claim with AIG for our losses due to “misleading and deceptive conduct” by Storm, our claim was repudiated because Storm did not have a “run-off” insurance cover thus restricting the lodging of claims to the period covered by the insurance policy.

Professional indemnity policies such as that taken out by Storm are triggered by claims made against the insured (in this case Storm) during the policy period. In other words, coverage is triggered by a claim being made during the policy period, rather than the conduct giving rise to the claim occurring during the policy period. Herein lies the problem!

AIG did provide”claims made" professional indemnity insurance to Storm for the period 21 November 2007 to 10 December 2008. For any claim made by us to be acceptable, two things would need to have occurred during the period of the 07/08 policy to trigger indemnity under that policy:

(1) We would have had to make a claim for damages against Storm during the 07/08 policy (We were not in a position to do so until late 2009) or
(2) Storm would have had to have notified facts or circumstances (that might give rise to our claim) to AIG during the 07/08 policy period.

Because the 07/08 policy did not contain a “deeming clause” it effectively restricted us from pursuing our claim under this policy. We have been told that even if Storm had been aware of our claim (which it wasn’t) during the 07/08 policy, it would not have been enough because our claim needed to be lodged within the life of that particular cover.

Storm’s PI insurance was an industry standard rather than an exception. I wonder how many people truly understand their position in relation to financial advisers’ professional indemnity insurance when seeking financial advice. None, I would think! If they did, I doubt that many would entrust their financial well-being to professionals that do not have adequate PI insurance? What’s the use of having PI insurance if claims cannot be made against it through being time barred? To allow such a situation to continue unabated is tantamount to lunacy. But then there’s been quite a bit of that lately where politics is concerned.

There is no question in my mind that the PI insurance taken out by Storm Financial and many other financial advisory individuals/firms for that matter, does not comply with Section 912B of the Corporations Act because such policies by their very nature do not have the capacity to compensate retail clients because of time restrictions. I therefore put it to you that this Government and ASIC failed in their duties and responsibilities to Storm’s investors (and continues to fail others as well) with regard to PI insurance because Section 912B of the Corporations Act could not, and still cannot be fulfilled in the majority of cases.

In ASIC’s letter 13/2/2012, it quotes part of the ACT:

“Section 912B(1) states that a financial services licensee that provides a financial service to retail clients must have arrangements for compensating those persons for loss or damage suffered because of breaches of their obligations under the Act by the licensee or its representatives. The arrangements must meet the requirements under subsection 2.

Subsection 2 states that the arrangements must:

(a) if the regulations specify requirements that are applicable to all arrangements, or to arrangements of that kind - satisfy those requirements; OR

(b) be approved by ASIC.”

ASIC then go on to say, “So, in essence section 912B allows a licensee a choice about which arrangements to implement.”

Yes! I agree that Section 912B allows a licensee a choice about which arrangements to implement but it doesn’t mitigate this Government or ASIC’s obligation under the Act; namely to ensure “that a financial services licensee that provides a financial service to retail clients must have arrangements for compensating those persons for loss or damage…”

The wording in this Section is specific and unequivocal. How, therefore, can this obligation be met if the insurance cover is both inadequate and ineffective as was the case with Storm Financial’s indemnity insurance? How can ASIC now turn around now and state, “So, in essence section 912B allows a licensee a choice about which arrangements to implement.” What does that have to do with anything? For that matter, what good are having arrangements in place if those arrangements DO NOT “compensate persons for loss or damage” because the policy does not contain a “deemng clause”?

Is the Corporation Act an instrument that ASIC and this Government can interpret as they see fit or does it have some substance in Law?

[Continued in Part 2]

 

[Frank Ainslie]

Part 2 of my letter to Chris Bowen regarding PI insurance and ASIC's responsibilities under Section 912B of the Corporations Act for administering such.

(Continued...)

On ASIC’s website it states:

“We deliver a wide range of compliance programs aimed at ensuring companies, schemes and various individuals and entities meet their obligations under the Corporations Act 2001 (Cth) (Corporations Act).”

If Storm Financial did not have the means to compensate persons for loss or damage as stated in Section 912B, whose fault was that? Wasn’t it ASIC’s duty under the ACT to ensure that such means were in place? I think so! After all, what are compliance audits for if not to ensure that Storm was meeting its obligations under the Corporations Act? Storm’s directors thought that they were meeting their obligations in relation to professional indemnity insurance because ASIC didn’t tell them otherwise. ASIC assumed that Storm was meeting its commitments in this regard because no one thought to ask whether the professional indemnity insurance policy Storm had taken out would serve to compensate Storm’s clients for loss or damage in any circumstances if the need arose.

Emmanuel and Julie Cassimatis, the founders of Storm Financial, have stated that ASIC officials ''visited Storm's premises and conducted reviews and audits on numerous occasions from 1993 to 2008'' without raising concerns. This indicates that compliance audits were taking place at regular intervals. What excuses do ASIC therefore have for not ensuring that investors’ interests were being protected not only with respect to PI insurance but overall?

In ASIC’s letter 13/2/2012 it states, “The arrangements that have been set in place by regulations are that licensees that provide financial services to retail clients must hold professional indemnity (PI) insurance cover that is adequate. Adequacy is measured with regard to factors such as the size of the licensee's business (reg 7.6.02AAA).”

How can ASIC possibly argue that Storm’s PI insurance cover was adequate? Storm had an insurance cover for some $25 to $45 million dollars (the true figure has yet to be ascertained) and yet Storm Financial was handling portfolios worth hundred of millions of dollars. How does ASIC explain that away under reg 7.6.02AAA? With great difficulty, I would imagine!

Whilst on this subject, when was the last time ASIC measured Storm’s business or for that matter, was it ever measured? Quite frankly, to me, and I am sure, many like me, this is a completely unacceptable answer from a Government Body that has been created to safeguard consumers’ interests.

I put it to you that ASIC DOES HAVE a responsibility under Section 912B(1) “to ensure that financial services licensees that provide a financial service to retail clients do have arrangements in place for compensating those persons for loss or damage suffered because of breaches of their obligations under the Act by the licensee or its representatives.”

The wording is precise in this regard. Certainly there have been breaches by Storm of their obligations under the Act so this condition is met!

I also put it to you that subsection 2 does not (as ASIC claim) in any way diminish ASIC’s responsibility under Section 912B because it deals with the “arrangements” rather than the “obligation”. The choice regarding any arrangements should have no affect on the obligation, which is that “licensees that provide financial services to retail clients must hold professional indemnity (PI) insurance cover that is adequate.”

For this Section to be interpreted in any other way would make investors’ positions with regard to their rights to compensation untenable and the wording of the Act misleading.

We, Helen and I, have a clear case for ”misrepresentation” against Storm because our signatures on the SOA agreement were obtained by deceit. Yet, we cannot sue Storm because it is now defunct and we cannot claim against Storm’s PI insurance because the policy time bars us from doing so. Whilst we now have claims against the Banks that we contracted with whilst with Storm, this is our only recourse other than lodging a claim against ASIC for failing in its duty of care towards us. Bearing in mind the circumstances, can you explain why ASIC and this Government should not be considered liable for our losses because the “buck” must ultimately stop somewhere? ASIC’s compliance procedures were grossly inadequate and this Government and past Governments’ regulatory laws were likewise. How else can you and your colleagues explain away this financial fiasco?

It seems incredible to me that despite what has occurred, this Government still cannot get it right even today. Let’s take PI insurance as a prime example:

The first thing to consider, and it should be an object lesson for all, is that when a scenario such as Storm Financial occurs, it is impossible for claimants to lodge claims until wrong doings are identified which makes a nonsense of PI insurance such as that held by Storm. Not making it compulsory still for financial advisers to hold “run-off” insurance leaves a glaring hole through which more investors will continue to fall like those before them. Further, it brings into question the value of PI insurance in its current form as an effective security device for anyone that is seeking to invest using financial advisers when so doing. This loophole has not been addressed under the new regulations, which means that lessons still have not been learnt.

ASIC’s letter 17/3/2011 states, “Regulatory Guide 210 (RG 210 Compensation and insurance arrangements for credit licensees) and Regulatory Guide 126 (RG 126 Compensation and insurance arrangements for Australian Financial Services licensees) address how ASIC proposes to administer the law in relation to adequate insurance cover for both types of licensees. In setting our policy on PI insurance, we need to take into account the coverage available in the insurance market.”

Why does ASIC need to take into account the coverage available in the market place? By so doing ASIC and this Government are allowing outside forces to dictate policy rather than the other way around. To my mind, there are two clear choices:

(1) make it mandatory for all professional indemnity insurance covers taken out by financial advisers to have a “run-off” clause with an extended claim period, and if this isn’t feasible;
(2) provide Federal or State Government insurance as an alternative.

If insurance companies are not prepared to issue sufficient or effective PI insurance to fully cover those in the financial advisory industry, and by so doing also provide safe guards for those investors using financial advisers, then its up to this Government to offer investors a viable alternative as I have suggested above. By so doing you will:

(a) restore investor confidence;
(b) provide the means whereby claims can be settled quickly;
(c) create additional revenue for the Government coffers.
(d) avoid financial debacles such as ‘Storm’ where the investors lost everything;
(e) reduce the need for litigation with its subsequent costs;
(f) give investors certainty when using financial advisers;
(g) weed out those financial advisers who do not have sound infrastructures.

Some will argue that this will just be a further impost on an industry already weighed down with enough restrictions and regulations. I disagree because I believe the benefits of so doing, which I have stated above, far outweigh any downside.

Whatever, only by taking the necessary steps to change the current situation with regard to professional indemnity insurance will this Government restore investor confidence and encourage future growth in the investment market. What’s more, it will reassure investors that this Government finally means business!

I will end on this note. We that lost money by investing on the advice of Storm Financial are sick and tired of the excuses that have been trundled out since then by the Banks involved, ASIC and this Government. The financial sector has been operating for hundred of years in this country, and yet those in high places still can’t get it right. We (75% of Storm victims are elderly) have had to sit around for three years waiting for compensation whilst many of the wrongdoers blithely carry on operating their trade. What’s more some of us are now having to pay private solicitors to get the job done because ASIC has been dragging its heels since this all began. At times it seems to me that it not so much that the problems in the financial sector cannot be rectified, but rather that it suits those that hold the balance of power to keep the ‘status quo’ intact because it works to the advantage of powerful financial institutions.

For goodness sake, for the benefit of those that follow in our footsteps, I am asking your Office now to fix these problems even if it’s only with regard to “professional indemnity insurance” before thousands of others go down the same path as us.

And while you are at it, I suggest that you arrange for a Corporations Law expert to interpret Section 912B of the Corporations Act so that some clarity can be given to its meaning, and a clear definition of ASIC’s responsibilities when administering such be so established.

Yours respectfully,


VICTOR (Frank) AINSLIE

 

[Garpal Gumnut]

There appears to be independent support for Storm Financial in following procedures existing at the time of the Storm debacle.

This, from

https://theconversation.edu.au/financial-advice-reform-have-we-learned-enough-from-storm-5299

A blog associated with Melbourne University

When financial planning firm Storm Financial collapsed with $3 billion in investment losses, many of its investors were left destitute. A parliamentary joint committee inquiry into the company’s demise was conducted in response and, in 2010, then Financial Services Minister Chris Bowen announced a series of sweeping reforms aimed at giving greater protection to retail investors.

The Future of Financial Advice (FOFA) reforms are due to come into force on July 1, 2012. The proposals are intended to minimise conflicts of interest and restore confidence in the financial advisory sector. The proposals include: a ban on commissions and rebates on a prospective basis; a requirement for clients to opt in for advice every two years; a duty for financial advisers to act in their client’s best interests; a ban on percentage-based fees on geared products and portfolios; allowing superannuation funds to provide simple intra-fund advice at minimal or no cost to members; and further powers for the Australian Securities and Investments Commission (ASIC) to act against unscrupulous advisers.

The fundamental purpose of the proposals is to prevent consumers from suffering investment loss arising from inappropriate advice. The most devastating example is attributed to Storm, where about 4000 clients suffered losses estimated to be $3 billion. The advice was based around “double gearing” – by borrowing against the client’s house and then using margin lending to invest heavily in the sharemarket. The undoing of this strategy was the global financial crisis when share values fell heavily and the lenders called in loans – both against the shares and against the client’s house. Yet Storm had complied with procedural requirements of the law at the time. The model used by Storm could exist in the future for some clients, except for a modification to the remuneration method.

This assessment seems to state that Storm and the Storm principals complied with procedural requirements at the time, and that the investors were badly served by legal statute at the time.

New rules however may not prevent future investors from suffering similar loss, in similar circumstances, the article states.

gg

 

[jjtebj12]

Assumptions:

You assume I was greedy for investing in Storm.
You assume I didn't do any investigations.
You assume I wanted a quick get rich scheme.
You assume the banks did no wrong.

I had two Bank Managers and my Accountant meet with Storm representatives and go through the same process that I went through. Then the Bank did there due diligence and said it was a good investment. That Bank has since settled my case. Why because they gave advice based on my assets.

 

[Frank Ainslie]

Assumptions:

You assume I was greedy for investing in Storm.
You assume I didn't do any investigations.
You assume I wanted a quick get rich scheme.
You assume the banks did no wrong.

I had two Bank Managers and my Accountant meet with Storm representatives and go through the same process that I went through. Then the Bank did there due diligence and said it was a good investment. That Bank has since settled my case. Why because they gave advice based on my assets.

Hi jjtebj12!

Some of the self-appointed experts on this forum have labelled those that invested in Storm stupid and gullible. Yet, it seems, Bank Managers, Accountants, and ASIC among others gave Storm’s model a tick of approval? Shouldn’t they too have had more sense? In fact, with their backgrounds in finance, if Storm’s scheme was that obvious, they would have been the first ones to spot it, one would think!

The truth of the matter is that if these professionals couldn’t see through it, how could ordinary investors be expected to do so? People on this forum that claim otherwise should wake up to themselves! Storm was one of the biggest financial advisory firms in the country. It's not what Storm offered that is in question. It's what Storm actually did with our money and its motivation for doing so that is central to everything.

 

[SJG1974]

Assumptions:

You assume I was greedy for investing in Storm.
You assume I didn't do any investigations.
You assume I wanted a quick get rich scheme.

Assumptions:

YOU assume that people assume the above about you.

Noone has assumed any of these things about YOU. And I am pretty sure that noone has assumed the banks did no wrong.

However, given some of the posts from certain Storm victims on this forum, it is hard to come to any other assumption about some Stormers then those above. Which leads me to good old Frank…

The truth of the matter is that if these professionals couldn’t see through it, how could ordinary investors be expected to do so? People on this forum that claim otherwise should wake up to themselves!

And yet of every 4 people who went to Storm and learnt about this you beaut strategy of gearing to the gills and plonking it in shares, 3 walked away and took their life savings with them.

If it was so darn difficult to see through the strategy that Storm sold you, then how come you were in the minority when it came to people who went with them? Perhaps it is time you woke up to yourself Frank and understand the role you played in your own demise.