Storm Financial Group

[Julia]

This discussion with Scott Pape ("The Barefoot Investor") on the Tony Delroy radio program earlier this week was quite interesting. The focus is on how to choose a good financial adviser.
Storm Financial comes in for a few brief mentions.

http://mpegmedia.abc.net.au/local/nightlife/nightlife_m2074664.mp3

Scott Pape emphasises the importance of individuals having a reasonable personal level of financial literacy, even if only (as I've been on about here many times) in order to discern the competence or otherwise of advisers.

 

[DocK]

No HQ, the questions are very much relevant to storm clients.

(could not quote entire post for some reason, so snipped a large section)

I am in no way saying that every storm client knew exactly what was happening. Storm spent many years wearing certain clients down and slowly drip feeding the borrowing levels into their portfolio. Markets were heading North and I can see why clients would sign paperwork prepared by their trusted adviser who had done the right thing to that point. I know I have clients who trust me and don't really question or look at every detail of what I am doing for them. Lucky for them it is all above board.


How then can we say the banks are the only people to blame in this whole thing?

My point was that no matter which financial advice firm, which bank, which margin lender, ANY client who used borrowed or double borrowed money to invest in Australian shares between late 2007 - early 2009 was wiped out.

Storm clients need to have a good look at what category they fall into. If HQ you were a fully retired, no significant income client who Storm misled and the banks should not have lent to then keep up the fight. If not, a bit of self reflection is required.

I don't disagree with anything in the above post. I'm actually on record on this thread for accepting that I share the responsibility for the unhappy outcome of my Stormy experience, along with my FP whose advice I initially acted upon and the bank who funded the excercise. My margin lender I actually excuse altogether as in my case I was out before a margin call would have become necessary, so therefore don't have a complaint about not having received one - unlike so many others. Macquarie certainly weren't easy to deal with, as they made it as difficult as they could for me to actually sell down my portfolios and clear my debt without involving Storm - but I was able to prevail in the end.

What Doobsey hasn't covered in his take on the situation are the issues of bank val'ns and the looming UMIS issue. In my case servicing of our bank debt could be proven at a stretch, with a bit of finessing - in any case we are managing to cover the ongoing interest costs. We would not, however, have had a loan of the size extended to us if not for a shonky desktop val'n - the CBA have admitted fault in this area, and offered compensation based on their calculation of what a correct val'n would have been.

As to the UMIS issue - I see this as being at the crux of the Storm saga. If not for the backing of the banks, CBA in particular, and the united front put forward by Storm and their financial partners, the number of people who would have proceeded with the flawed strategy would have been far, far less. Technicalities aside, the legitimacy of Storm and therefore the strategy they promoted was enhanced tenfold by the very close relationship they enjoyed with their funding partner - and this factor definately weighed heavily in influencing me towards accepting their advice. Clearly, with hindsight, it shouldn't have - but mere humans who are used to trusting their very reputable banks are prone to believing them.

So I guess the way I see things is that even if a client could afford the possibly inflated loan they were given, and freely followed the advice they were given, does that then excuse the behaviour of the protected corporate giants who allegedly formed a parnership with Storm to sell a one-fits-all product and then pulled the rug out from under their business partners and clients alike, far too late to avoid anything but total catastrophe, when the heat got too much for their liking?

I'll admit I've made up my mind on the ethics. It's yet to be seem what the legal system will decide on the legalities. In no way does my opinion on the banks involved let the Cassimatii off the hook - my opinion on them has also been made quite clear before.

 

[doobsy]

Good post.

Yes I excluded UMIS mainly because it isn't yet fact and also it won't cover all clients. I think CBA and BOQ will be seriously nervous but they have had almost 4 years to get their story straight and look into the VERY fine detail of their arrangement to find a way to prove they were at arms length.

I think the overlend due to the desktop software is one area that needs further investigation, not only for Storm clients. Banks were falling over themselves from 04-08 to release "Equity Mate" from everyone's homes. There may be a broader case for them to answer on this issue. How many people pulled money out for renovations, boats, holidays etc based on inflated values only to find now they owe almost as much as the place is worth.

Dock I agree that CBA were liberal in their lending to Storm clients, as were BOQ North Ward. The critical piece will come down to servicability. How many like yourself could and can afford the loan provided to them. This might be the fly in the ointment for some of the Storm claims.

 

[Harleyquin]

We do fall into that group who have worked for an employee all our life.

I think our experience is a warning to anyone else out there if you are just working for wages. If we take Julia and Bunyip at their word then your financial future is firstly and foremostly up to you.

If you take my advice you will never trust a financial planner or major bank in Australia again. This is because, if you do and things go wrong, they and others will consider that it's pretty much all your fault for believing them. Any future financial adviser clients and that particularly includes bankfinancial advisors, be very careful. If you don't understand ... Don't go there.

 

[SJG1974]

Any future financial adviser clients and that particularly includes bankfinancial advisors, be very careful. If you don't understand ... Don't go there.

Sage advice HQ. It should form the basis of pretty much every decision we make about money (and probably most things in life).

 

[bunyip]

There were storm clients who may have made big money during the best years however there were many of us who didn't. Its interesting that ex storm clients are now going to other advisors asking for a high risk option. When we went to storm we were given a high risk option, in fact we were given four options to choose from and I've copied that information below.

The question I ask is 'why were we given these options and then they ignored them as not all of us asked for a risky option.'

PERSONAL PROFILE

As a further aid in providing a recommendation we would like to know your thoughts about investments. Please tick and initial the box below that best represents your views on investments.

1. I am prepared to entertain speculative ventures of a risky nature and am prepared to lose my asset totally if necessary in an attempt to make high profits.

2. I am prepared to accept short to medium term volality and am also prepared to accept a level of real risk where some of my asset may be irrecoveraby lost.

3. I am prepared to accept volatility if in the medium to long term the investment growth is higher and teh risks over that term are minimal or eliminated.

4. I am not prepared to accept any level of volatility and realise that this selection will result in low growth and substantail exposure to inflation risk.

As you can see from our storm profiles we were able to choose our level of risk which I think is fair enough. There were certainly those who chose a high risk option but alternatively there were those who chose no risk at all.

This was where the trust issue came in. We trusted that we were being given our risk preference. It wasn't until storm crashed that we found out that everyone was given the same investment strategy despite filling in this risk option.

HQ

It looks to me like the four ‘risk options’ in the PERSONAL PROFILE were not being offered as investment options at all, but rather were just questions about what level of risk you felt comfortable with. I suspect that Storm’s reason for compiling this ‘PERSONAL PROFILE’ was to make it look like they would tailor a personalised strategy according to the risk tolerance of clients. It appears to have been just a bit of a sales pitch to make them look professional and caring. However, Storm offered just one strategy as far as I’m aware, not the choice of four different investment strategies that each had a different risk level.

Whatever strategy was offered and however it was presented, the prospective client was responsible for evaluating the strategy to determine it strengths and weaknesses, and whether it was suited to their personal situation.
This is no different to any other investment proposal – the client is ultimately responsible for evaluating the proposal before committing investment funds to it.

 

[Julia]

We do fall into that group who have worked for an employee all our life.

I think our experience is a warning to anyone else out there if you are just working for wages. If we take Julia and Bunyip at their word then your financial future is firstly and foremostly up to you.

If you take my advice you will never trust a financial planner or major bank in Australia again. This is because, if you do and things go wrong, they and others will consider that it's pretty much all your fault for believing them. Any future financial adviser clients and that particularly includes bankfinancial advisors, be very careful. If you don't understand ... Don't go there.

I understand that this has been a difficult realisation for you to come to. And, yes, you would quite reasonably think that if you go to a licensed financial planner, they are going to act with your best interests as a priority.

But sadly it's just not necessarily so, as you've discovered to your considerable cost.

As SJG suggests, this attitude of wariness really needs to go with us in all our dealings if we're to avoid being done over.

You'd probably assume, e.g. that a professional person who has done good work for you at a reasonable cost in the past could be depended on to provide similar in the future. Just as an example I've approached two legal firms with whom I've been completely happy for past matters and asked for quote on conveyancing.
Both were much too expensive and about 40% more than I was able to find elsewhere. So we cannot even assume that past good service is any guarantee of future value.

On a separate front, this article in today's "Weekend Australian" is interesting.

Many of the nation's biggest banks - including Westpac and Macquarie - are being forced to forgive debts granted on the basis of false information about lenders supplied by mortgage brokers during the last property boom.

Under the scam, which draw parallels with US subprime lending practices, a number of mortgage brokers have been found to have substantially inflated incomes of low income earners to allow them to borrow far more than they were able to repay.

The Weekend Australian has also obtained dozens of emails between lenders and brokers that show the aggressive tactics of lenders used during the boom before the global financial crisis.

These include spruiking "ABN for one day" strategies, which helped borrowers on low incomes get bigger loans by providing them with an Australian Business Number to give the impression they were self employed.

Under other schemes, typically asset rich but income poor homeowners were encouraged by brokers to "unlock" the equity in their homes by borrowing against them to buy investment properties. Because banks require evidence of a borrower's ability to repay loans, information such as income levels have in many cases been falsely inflated by brokers before being submitted to banks.

Quite a bit more along the same lines.
So it seems Storm's practices were not exactly unique.

 

[bunyip]

We do fall into that group who have worked for an employee all our life.

I think our experience is a warning to anyone else out there if you are just working for wages. If we take Julia and Bunyip at their word then your financial future is firstly and foremostly up to you.

If you take my advice you will never trust a financial planner or major bank in Australia again. This is because, if you do and things go wrong, they and others will consider that it's pretty much all your fault for believing them. Any future financial adviser clients and that particularly includes bankfinancial advisors, be very careful. If you don't understand ... Don't go there.

HQ

With all due respect for your opinions about the major banks, anyone taking your advice not to trust them will find it difficult to ever build up enough investments to become financially independent. You can invest only your own money if you want, but you can get ahead much faster by investing other peoples money as well. Most wealthy people have taken out investment loans at one time or another to fast-track the wealth creation process.
But of course you must be careful and prudent with investments, particularly when there’s borrowed money involved. If you let the blood rush to your head by borrowing recklessly, then you obviously increase the likelihood of coming unstuck.

I pretty much agree with your advice of ‘If you don’t understand...don’t go there’.
But I’ll add that sometimes the only way to understand something is by having a go at it and learning from your mistakes. If you go down this road then it’s imperative that you make your mistakes with only very small amounts of money until you become proficient.
I’ve traded the Foreign Exchange market for the last eight years or so. I read and learnt as much as I could before attempting to trade, but I fast-tracked my understadning of currencies by opening an account with just 2 grand and having a go at trading them, learning from my mistakes as I went. Good job I was only playing with small money – my losses would have been catastrophic if I’d committed 2 million dollars to it instead of two thousand.
I eventually got to understand currencies and learn what works and what doesn’t in trading them.
I may never have learnt about this market if I'd stayed away from it because I didn’t understand it.

 

[Frank Ainslie]

Bunyip,

Frank actually doesn't have to answer any questions to anyone on this forum. There is no obligation for him to do so.

An interesting point to note might be that while you think his attitude is weak and hypocritical there are others that admire his strength and ability to stick to his beliefs and continually fight for them when others would have given up on being continually bullied (both by large institutions and opinionated people with no idea of the reality he's living) and walked away years ago.

Bunyip, some would see your attitude as confrontational and that of a bully. Others would see it as identical to Frank's in many ways - continually pushing the same point of view. Still others would have other ideas.

cheers
Maccka

Thanks Maccka! I appreciate your understanding!

The trouble with people like Bunyip is that they are completely one-eyed. Of course, he will say the same thing about me and many will agree with him here. So be it!

He has accused me of not answering the questions people have posed to me on this forum. However, if he takes the trouble to read back through all my postings he will see that I have answered every question that has been posed to me these last few months. In fact, I would go as far as to say that no one from our side has offered more explanations than I have on this forum about our mind-set and circumstances at the time. Therefore, what Bunyip is stating when he claims that I am avoiding questions that have been posted is complete hog-wash and anyone that has read all my past postings will know this to be so.

What gets up Bunyip's nose and some others on this forum is not that I have not responded to their questions, but rather that my responses have not been to their liking. Such individuals are found everywhere. If you don't agree with them, they will try and pour scorn on your opinions and twist your words for your own ends. They work on the premise that the truth should never get in the way of a good argument or the facts deter one from promoting a set of beliefs that do not conform with the facts. They answer a question with a question and blow their own trumpet at regular intervals in the hope that the walls of Jericho will come tumbling down, and the rest of us will be buried beneath falling rubble. If this line of attack doesn’t work ,and it usually doesn't when intelligent and well-informed people, are present, then there is the age old ploy of attacking someone on a personal level. The ALP recently tried the same thing up here in Queensland and they copped a serve because the Queensland public saw through such tactics.

Their theme is always the same. “We were foolish to invest using the services of Storm and anyone with an ounce of nous could have seen through Storm’s theme from the start.” Yet, in the past when I have raised two important points in this regard, they have been completely evasive.

Until they can answer these two fundamental questions, they cannot sustain their lines of reasoning without sounding biased.

(1) Were Stormies justified in relying entirely on their Storm Financial Advicers

When I asked some time ago how many on this forum had any knowledge of the law, many if not all were found wanting. Some have actually admitted since that they have consulted lawyers at some stage in the past. We are entitled to ask such individuals whether they actually boned up on the law at that time or did they leave it to their lawyers? I'm betting a pound to a penny that those people left it entirely to their lawyer because they, the lawyers are the professionals, and not them.

Yet, these same people are also now insisting that we should not have left it entirely to our Storm Financial advisers who were also professionals. This implies that financial advisers despite their qualifications and experience in financial matters do not merit the same respect as professionals in other fields of endeavour. I was not aware, and I am certain no one else that invested using the services of Storm was either, that professionals are ranked according to the industry they work in? Does anyone know if such a ranking in fact exists? Does a doctor or lawyer have a five-star rating whilst financial advisers only have a one-start rating is something we would dearly like to know. Unless the detractors can produce such a ranking, I cannot see how they can argue that we were wrong to accept financial advice from Storm’s advisers?

2. How could we know that Storm's plan was not viable or had been misrepresented when ASIC, the Regulator, just 12 months before, examined such and gave it the all-clear?

People have claimed that we should have acquired the necessary investment awareness beforehand so that we could have avoided what to them was an obvious “high risk” scheme with a “one’fit” for all that was doomed to fail. Yet, ASIC, the Regulator, who employs people trained in financial matters and compliance, failed to see anything wrong until after Storm collapsed? In other words, ordinary Australians, many of them elderly, were expected to discern the flaws in Storm’s scheme when those qualified to do so could not! Should we now be sending the staff of ASIC back to school for some further education or is this suggestion as daffy as it sounds?

These issues strike at the heart of this matter because (1) they demonstrate that we were fully entitled to rely on professional financial advisers, duly qualified, for any financial advice and guidance we received, and (2) this was not “a transparent high risk" scheme as many claim. The charges now levelled by ASIC in the Courts against Storm and the Banks emphasize the duplicity that was involved in persuading people to invest in a scheme that was "misleading and deceptive". It was sold as a “low risk long term growth scheme” with “built in safeguards" to protect investors’ assets”. The statement of charges drawn up by ASIC that will also be pursued by our lawyers bear testimony to this fact.

Isn't it a bit like saying a woman is asking for it because she wears a low cut dress. This argument has no more basis than those being used against us now.And please, for those that read this remark as an attack on women rather than as an example, let's start using a bit of commonsense. Enough foolishness has been said on this forum already and we can do without more of the same.

Bunyip and others on this forum choose to ignore these important questions because they cannot be answered sensibly without undermining their contentions that we are somehow to blame..

I have no objections to discussing any matter to do with Storm if people are willing to consider my remarks in an objective way. I do however, take umbrage when matters are introduced that have no real bearing on the issues involved or are not germane in our fight against the Banks. For instance, our motivation for originally investing using Storm will not arise in Court because it will be assumed quite rightly that we acted in good faith whilst the accused did not! For that reason, the Court will not be grouping us with them.

Why, therefore, should we accept such a suggestion from some members of this forum when they cannot state a plausible case for their assertions to start with? Perhaps, if they can sensibly answer the questions I have posed here, then I will be willing to debate with them further. Until then, I will treat their accusations as ill-founded and uninformed. To prove me wrong, they will have to provide substantive reasoning to the contrary when answering these questions, and their past record does not suggest that they can do this.

Fortunately, we do not have to rely on members of this forum to render a verdict in the forthcoming trials. The Banks enjoy a presumption of innocence until they have been found guilty. A certain faction on this forum have already found us guilty although I still can't figure out how they arrived at this conclusion. After all, we have not been charged with any wrongdoing, but rather those that have robbed us of our money are now squarely in the dock. I haven't to date been asked to stand alongside them?

Where's the logic in such reasoning? It certainly beats me! You may rest assured that some will try and find some though.

You are quite right, makka, when you state that I or anyone else for that matter doesn't have to answer any questions on this forum if they don't want to, and people can draw their own conclusions from such silence. I will therefore leave it to the forum members to draw their own conclusions if this challenge is not taken up.

What did Doobsy say a little while ago? Let's see "who is brave enough among you" to answer these questions I have asked? Until you do, you should not continue to pursue a line of argument that you cannot substantiate.

 

[bunyip]

(1) Were Stormies justified in relying entirely on their Storm Financial Advicers


2. How could we know that Storm's plan was not viable or had been misrepresented when ASIC, the Regulator, just 12 months before, examined such and gave it the all-clear?

1. Of course they weren’t. Astute people don’t just accept investment proposals from commission salesmen without doing some independent research of their own before committing millions of dollars, much of it borrowed, to the investment.
To do so is foolish and risky, as has been proven by the wipeout of Storm clients.

2. This one has already been answered dozens of times, but I'll answer it again.
You could have known that Storm's plan was not viable if you'd been astute enough to simply ask yourself one question.......'What would the effect be on my proposed portfolio if there was another market crash of similar magnitude to the 1987 crash'?

The answer to this question would have warned you that in your case you could take a 500 grand hit in one day, and a 1 million dollar hit in a little over a month.
If Storm had given you this information you would have changed your mind immediately about their plan being viable.
Well Frank, you could have easily uncovered this information for yourself if you'd had enough 'get up and go' in you to scratch slightly below the surface instead of just blindly believing everything that Storm told you.

 

[Frank Ainslie]

1. Of course they weren’t. Astute people don’t just accept investment proposals from commission salesmen without doing some independent research of their own before committing millions of dollars, much of it borrowed, to the investment.
To do so is foolish and risky, as has been proven by the wipeout of Storm clients.

2. This one has already been answered dozens of times, but I'll answer it again.
You could have known that Storm's plan was not viable if you'd been astute enough to simply ask yourself one question.......'What would the effect be on my proposed portfolio if there was another market crash of similar magnitude to the 1987 crash'?

The answer to this question would have warned you that in your case you could take a 500 grand hit in one day, and a 1 million dollar hit in a little over a month.
If Storm had given you this information you would have changed your mind immediately about their plan being viable.
Well Frank, you could have easily uncovered this information for yourself if you'd had enough 'get up and go' in you to scratch slightly below the surface instead of just blindly believing everything that Storm told you.

Thank you 'Buniyip' for brightening my day! Where would we all be without your sense of humour! I'll now try and lighten your day because fair's fair!

Look down and check whether you have any feet left because every time you write, you keep shooting yourself in one foot or the other! I think it's called "footicide" or some such thing! Let's see now what banality you have prepared for us this morning!

1) Were Stormies justified in relying entirely on their Storm Financial Advicers
You have responded by stating, "Of course they weren't". Pardon???????????? I guess that's what comes of being in a "head-banging" club - long term concussion!

What rubbish and you know it! That’s exactly what this is all about! In law it’s called “misrepresentation” but then I forgot, you know nothing about the law so I will forgive you for your ignorance. Let me therefore educate you where the law is concerned although I really feel you should have learned all about the law in school as some here have suggested.

When you enter into any agreement, one party is not allowed to "misrepresent" in order to persuade the other party to agree. It’s one of the tenets of contract. If our society were to operate as you seem to suggest, anarchy would reign everywhere rather than just in your mind.

You know, Bunyip, it really does amaze me how you can dismiss financial advisers’ duties and responsibilities in such an arbitrary way as if their opinion doesn’t count for anything in the final analysis. Why the heck should people pay financial advisers if they are only there to be part of the furniture? Should 'Doobsy' never be paid again for any financial advice he gives out to his clients because such advice is really meaningless anyway and serves little purpose because it cannot be relied on?

One more thing, Bunyip! Describing financial advisers as “commission salesmen” is an obvious attempt by you to obviate their primary function which is to give sound financial advice to their clients based on their experience and training in financial matters. Dismissing them merely as “commissioned salesmen” to suit your argument once again reflects your deviousness when commenting on such matters.

Here's another example of this:

2. How could we know that Storm's plan was not viable or had been misrepresented when ASIC, the Regulator, just 12 months before, examined such and gave it the all-clear?

This one has already been answered dozens of times, but I'll answer it again.

That’s the point! You have never answered it at all and even now you choose to ignored what I asked, but rather have deflectedf the question back to us when that is not the issue. This time it is not about what we did but what ASIC did or rather what ASIC didn't do! By avoiding the question I must either conclude that you are being deliberately evasive or you have a problem interpreting the question you have been asked. Therefore, to make it a little easier, I have now highlighted the question in bold to make it a little clearer!

“You could have known that Storm's plan was not viable if you'd been astute enough to simply ask yourself one question....... 'What would the effect be on my proposed portfolio if there was another market crash of similar magnitude to the 1987 crash?”

Wasn’t that really the question financial advisers should be asking themselves before they give advice to an unsuspecting public? Isn’t that also a factor that should be taken into account by Banks before they lend money for investment purposes. Yet, somehow, you now want to throw all this back on unsophisticated investors who relied on advice they had paid good money to obtain. What sort of ****-eyed reasoning is this?

"If Storm had given you this information you would have changed your mind immediately about their plan being viable."

That’s a big word “IF”. If my Aunty had nuts she’d be my Uncle! You have said one right thing though! “If Storm had given us the information..” because that’s exactly what they didn’t give us; the correct information on which we could have made an informed decision before signing up with them. In fact most of the information we received was "misleading and deceptive" and that is what all the parties involved are being charged with among a plethora of other things!

Now do you see, Bunyip, why you are such a frustrating fellow as far as we are 'Stormies' are concerned! You are constantly contradicting yourself and you have not come to grips with the real issues.

 

[SJG1974]

However, if he takes the trouble to read back through all my postings he will see that I have answered every question that has been posed to me these last few months.

Frank,

Can you point me to your answers to the questions below which were posed to you within the past few weeks?? I must have missed them, given you have said that you have answered every question posed to you.

No one argues that compensation is due for wrongdoing. My questions to you and any other stormie who is brave:

1. Do you acknowledge that if the storm systems had worked and you had been sold down at the trigger points you would still have sustained SERIOUS losses and most of your capital would be gone.

2. Do you acknowledge that you knew you had borrowed money to invest and as the market fell this meant that your capital was disappearing as the borrowings would need to be repaid at some stage. Or did you simply believe Storm when they said markets would bounce and therefore it would not be a problem.

As has been pointed out, the stock market didn't just fall off the edge of a cliff overnight, it fell over a period of 12 months. From the highs of late 2007, the market was down by 20% by the start of March 2008 (and given the powers of gearing, your portfolio would have been down by significantly more by then).

I am guessing that you wouldn't expect to lose more than 20% in a matter of months by taking on a low risk strategy. So you should have known full well by this time (and much earlier in reality) that this wasn’t a low risk strategy at all.

So my first question is, when did you start to realise that this low risk, conservative gearing to the gills into shares strategy was nothing of the sort?

And secondly, upon realising it was not low risk (and given you have been very firm in saying you did not want a high risk strategy and didn’t think you were getting one) why did you elect to stay invested and to even increase risk by taking on more debt along the way?

Why didn’t you bail out at the first sign that things weren’t what you had been led to believe they were?

As I said, please point out where the answers to these questions appear Frank.

 

[Frank Ainslie]

In the Eye of the Storm: The Collapse of Storm Financial
Paul Barry - Feb 2011

[Extract]


"Licensing is the rock on which ASIC’s regulation of the financial planning industry is founded. If you visit the regulator’s website you’ll see dire warnings of the dangers of taking advice from an unlicensed financial planner. But the experience of the Storm case suggests a licence from ASIC doesn’t necessarily make investors safe. Those who lost hundreds of millions of dollars in property group Westpoint also found little protection.
In its defence, ASIC says it can’t be expected to police everyone, but if its army of public servants were unable to notice there was something very wrong with Storm, you wonder why it’s in business. Storm was one of the biggest financial planning networks in Australia, with 115 staff, $4.5 billion of funds under management and 14,000 clients (of whom 4000 were already ‘Stormified’ and using the one-size-fits-all model of investment). The group had a highly visible and aggressive marketing campaign, with TV ads, weekly seminars and enthusiastic endorsement from the ex-Australian cricket coach John Buchanan.
Its founder was also high profile. He lived in a white, five-level house on the most prominent hill in Townsville and commuted to Brisbane in his personal Learjet. In 2007 he harvested $24 million in dividends for him and his wife. All of this was financed by the highest fees in the marketplace.
On top of this, ASIC actually received complaints about companies associated with Cassimatis and his high-risk approach in the early 1990s but did nothing. It then received further complaints about Storm in 2006 and again sat on its hands. Even in late 2008, by which time Storm’s investors had lost their shares, their houses and their super, and the company was on the brink of insolvency, ASIC still wasn’t interested. In mid December that year I rang ASIC to ask what action they were taking and was told: “We’ve had a few complaints but we’re not investigating.” They eventually got their boots on two days before Christmas 2010.
As BoQ said on the day ASIC’s legal actions were finally announced, roughly 18 months after Slater & Gordon filed its first damages suit on behalf of Storm investors, “We have every sympathy for customers who lost money … We too put faith in the regulatory system and can understand our customers’ frustration at the collapse of a financial planner that had the tick of approval from government regulators.”
On that point at least, you have to agree. It’s time for some answers on what’s wrong with ASIC and why it can’t do better".

 

[Frank Ainslie]

Hey Stormies!

Does this sound familiar to you? It seems that the Banks didn't confine their dirty deeds to Storm alone! Anyone out there that still maintains that the Banks are to be trusted and are working in the interests of their customers rather than themselves are, to my mind, suitable cases for treatment.

From Weekend Australian

"MANY of the nation's biggest banks - including Westpac and Macquarie are being forced to forgive debts granted on the basis of false information about borrowers supplied by mortgage brokers during the last property boom.

Under the scams, which draw parallels with US sub-prime lending practices, a number of mortgage brokers have been found to have substantially inflated incomes of low-income earners to allow them to borrow far more than they were able to repay.

The Weekend Australian has also obtained dozens of emails between lenders and brokers that show the aggressive tactics of lenders used during the boom before the global financial crisis.

There include spruiking "ABN for one day" strategies, which helped borrowers on low incomes get bigger loans by providing them with an Australian Business Number to give the impression they were self-employed.

Under other schemes, typically asset-rich but income-poor homeowners were encouraged by brokers to "unlock" the equity in their homes by borrowing against them to buy investment properties. Because banks require evidence of a borrower's ability to repay loans, information such as income levels have in many cases been falsely inflated by brokers before being submitted to banks.

...A string of recent court cases have found in favour of borrowers caught out by such behaviour, and ordered the banks -- who ultimately made the loans -- to forgive the debts on the basis they did not abide by their own lending practices in too easily accepting falsified broker applications.

In light of such findings, banks are scrambling to settle with those borrowers who are aware they have been wronged. In many such cases banks have agreed to a reduction in debt owed, rather than a full waiving of mortgages as judges have ordered in some cases.

Westpac spokesman Danny John yesterday confirmed the bank had received "a number of claims" and that "these were resolved on a confidential basis".

Denise Brailey of the Banking and Finance Consumers Support Association, who has been tracking loan application fraud over the last six years, said she had received about 200 such complaints and there were likely to be "thousands" of such cases across the country.

Financial Ombudsman Service director Philip Field said the organisation had received a number of such complaints.

In a worrying turn for Australian banks, which have long held themselves out as having the most stringent lending practices in the world, Mr Field said the problem involved "a range of lenders".

"These sorts of complaints are made across a range of brokers and lenders, its not confined to any particular lender," he said.

An investigation by The Weekend Australian, in conjunction with Ms Brailey, has uncovered hundreds of emails illustrating aggressive practices of the lenders during the property boom.

In the emails, some lenders, including Macquarie Bank, spruik a low-documentation loan, which requires only a "1 Day ABN".

Lo-Doc loans were created to be used by self-employed borrowers who were unable to show traditional proof of income, such as pay slips or income statements. To safeguard against abuse of such products, borrowers are required to show they have an ABN to prove they are self employed. However many borrowers were encouraged to apply for and hold an ABN for just one day so as to meet that legal requirement. Macquarie Bank declined to comment yesterday."

 

[Frank Ainslie]

QUESTIONS AND ANSWERS

Okay! Let’s get these issues out of the way once and for all! I will answer the questions that some claim I haven’t responded to in the hope that these will satisfy those that have not accepted any explanations I have offered to date. I realize in so doing that I am once again inviting negative comment but I am prepared to take that chance.

Originally posted by Doobsy:
“No one argues that compensation is due for wrongdoing. My questions to you and any other stormie who is brave:

1. Do you acknowledge that if the storm systems had worked and you had been sold down at the trigger points you would still have sustained SERIOUS losses and most of your capital would be gone.

If the Storm trigger-points THAT HAD BEEN AGREED TO BY US had been activated we would certainly have lost a great deal of money, but we wouldn’t have been wiped out! After all, these 'trigger-points' were safety devices designed to protect what was left in our portfolios in a worst-case scenario. We would certainly not have agreed to them in the first place if such trigger-points were set at a 'point of no return' which seems to be the assumption many here have made. It’s therefore logical to assume that such trigger-points had been set at an acceptable level that we had agreed to when we signed up with Storm.

It’s important to bear in mind when discussing 'trigger-points' that the ones we agreed to were not the ones that Storm and the Banks subsequently agreed among themselves in separate agreements with the CBA and the Macquarie Bank. Further, unbeknown to Storm’s clients, the ratios that Storm worked on did not factor in such borrowings as investment loans on clients’ houses. Therefore, the 'trigger-points' ratios were completely distorted and, as a consequence, removed the level of safety that we had been assured by Storm was in place.

2. Do you acknowledge that you knew you had borrowed money to invest and as the market fell this meant that your capital was disappearing as the borrowings would need to be repaid at some stage. Or did you simply believe Storm when they said markets would bounce and therefore it would not be a problem.

No one in their right mind would have remained unaware that any borrowing we had made would have to be repaid. At the same time, however, such borrowings would have been covered if the trigger-points had kicked in when the ratios had been reached that we originally agreed to in Storm's SOA.

At the time when all this was occurring in late 2008, Storm was insistent that they had everything under control and we had nothing to worry about. We had paid Storm a great deal of money to act responsibly, and we therefore assumed that they were telling us the truth. We were at that time completely reliant on Storm to advise us of the true position, and the best course of action to be take if and when such was needed. After all, they were the reputed experts in these matters, not us.

Storm never once asked us to hold on because they thought the markets would bounce back. It is evident now that Storm and the Banks thought exactly that, but we were never a party to such risk taking which is borne out by the fact that we were never consulted about or agreed to such a strategy. Our prime concern at that time was the safety of our portfolios and the minimization of any losses brought on by the GFC.

Originally posted by SJG1974
As has been pointed out, the stock market didn't just fall off the edge of a cliff overnight; it fell over a period of 12 months. From the highs of late 2007, the market was down by 20% by the start of March 2008 (and given the powers of gearing, your portfolio would have been down by significantly more by then).

I am guessing that you wouldn't expect to lose more than 20% in a matter of months by taking on a low risk strategy. So you should have known full well by this time (and much earlier in reality) that this wasn’t a low risk strategy at all.

Not at all! During that period Storm’s clients were asked to bolster their investments to off-set market falls. After all, this was the Storm strategy that had been agreed to by us. If everything was as bad as you say it was, wasn’t it Storm’s responsibility as our financial advisers to monitor the markets and take any remedial action that they deemed necessary long before they did?

The Storm setup was such that it was nigh on impossible to establish what the true position was because Storm did not have the software to do so. Of course, we didn’t know that at the time!

Because Storm could never obtain a true position for any of us, being reliant on the Banks for additional information (margin loans) that would reflect the overall positions of Storm's clients, everyone was basically in the dark. This is bourne out by the fact that Storm was using spreadsheets in the latter part of 2008 based on information that was being drip fed from the CBA and the Macquarie Bank. Unbelievable but true!

“So my first question is, when did you start to realise that this low risk, conservative gearing to the gills into shares strategy was nothing of the sort?”

For the reasons mentioned above, we never realized until later that Storm’s strategy was a “high risk” one. It should also be remembered that it only became a “high risk” one because Storm did not have the inbuilt safety devices they claimed they had in place, and they did not take the appropriate action when they should have done!

“And secondly, upon realising it was not low risk (and given you have been very firm in saying you did not want a high risk strategy and didn’t think you were getting one) why did you elect to stay invested and to even increase risk by taking on more debt along the way?”

As I have said before, Storm’s strategy was to invest more when the markets fell. In doing just that, we were abiding by the agreement we had with them. Having said that, we relied on Storm to activate the 'trigger-points' if this strategy became untenable.

“Why didn’t you bail out at the first sign that things weren’t what you had been led to believe they were?”
At no time did we become aware that a crisis point had been reached within Storm. How could we when no one had mentioned that our 'trigger-points' ratios had been exceeded and it was time to bail out. If we had known then what was happening behind closed doors we would certainly have taken matters into our own hands. However, we were not aware of any such thing, and furthermore we were constantly being assured that Storm had everything well in hand.

People tend to forget that we had paid Storm a considerable amount of money for handing our investments, and we expected them to do just that! That included everything from monitoring our portfolios, advising us of the courses of actions that we needed to take, and keeping our assets safe.

Now, many may think that we were foolish, many may believe that we should have been more vigilant, and some may question why we went with Storm in the first place. However, at the end of the day, this is not about our motivation at the time or our reasons for deciding to go with Storm. Rather, it is about the motivation of those that were entrusted with our monies and the reasons why they did not act in our best interests.

Whatever conclusions you draw about us is unimportant. The fact of the matter is that Storm and the Banks that were involved with that company were involved in wrongdoing. The maleficence that Storm and the Banks involved with that company were a party to when handling our assets has no part in any law-abiding society and should never be condoned by anyone that is fair minded.

At the end of the day, this is not merely about a financial advisory firm handing out poor advice or Banks that were sucked in by that company. Rather, it is about a financial advisory firm that deliberately set out with intent to use its clients' assets to serve its own ends, and Banks that aided and abetted in such a scheme because it generated a source of income (a river of gold as it has been aptly described) that generated enormous profits for all concerned to the detriment of Storm’s clients. Storm's clients certainly didn’t benefit from such antics but instead incurred more and more debt and furthermore their assets were put at increasing risk.

The fact that the PJC and the Worrells enquiry have all been strident in their condemnations of all concerned in this scheme, and ASIC (together with our lawyers) have now laid charges against the parties involved, is proof enough that this alliance was beneficial to no one other than those that concocted this rort. It may well have started as a financial advice with some merit but, like a lot of other schemes of its ilk, it ended up being perverted by people that were primarily motivated by greed! It is therefore ironic that we have some now saying that we, the investors that used Storm, were the greedy ones when nothing could be further from the truth. Most of us that invested using the services of Storm were conservative types with an eye to the future and thoughts of a fruitful retirement, free from financial worry.

If we therefore seem a trifle grumpy at times and rail at the world in general, and more particularly the rogues that have placed us in this position, you will have to bear with us. However, if you were in our place, I somehow suspect that you would be just as jacked off as we are!

For those that will still remain unsatisfied by this explanation, well I really have nothing more to add. That’s the way it was so you can believe it or not! However, it just happens to be true!

Now that I have answered these questions perhaps someone would care to answer those I have asked?

 

[Solly]

"Storm case grapples with definition of 'customer'

A CASE brought by the corporate regulator over the collapse of Storm Financial is shaping up as a battle over how far consumer laws protect bank customers."

More by Elizabeth Sexton @ smh.com.au

 

[Julia]

Hey Stormies!

Does this sound familiar to you? It seems that the Banks didn't confine their dirty deeds to Storm alone! Anyone out there that still maintains that the Banks are to be trusted and are working in the interests of their customers rather than themselves are, to my mind, suitable cases for treatment.

From Weekend Australian

Don't you actually read the thread?
I posted that on the 14th April.

 

[Frank Ainslie]

More by Elizabeth Sexton @ smh.com.au

Hi Solly,

The Banks have always assumed that they are above the law where margin loans are concerned because no one has seriously challenged them on this issue. Of course, irrespective of whether consumer protection laws apply, there are also contractual laws to consider. However, if the Banks can prevail in their assertions that margin loans are not covered by consumer laws, it would be a telling set-back and make our cases that much harder to win. I am confident, however, that the Banks will lose this legal argument too!

You may recall that at a hearing in July last year, in the case of two Sydney doctors, Mark Irving and Anthony Oliver, the bank argued that the pair were not entitled to rely on the consumer credit law because their loans did not fit its definition of goods or services ''ordinarily acquired for personal, domestic or household use''.
Justice Perram said he had ''some sympathy with the idea that a margin loan facility is not for household or domestic purposes'' but the bank had been unable to point to any legal precedent which established it. ''In those circumstances, this appears to me to be a triable issue,'' he said.

 

[bunyip]

(1) Were Stormies justified in relying entirely on their Storm Financial Advicers
You have responded by stating, "Of course they weren't". Pardon???????????? I guess that's what comes of being in a "head-banging" club - long term concussion!

What rubbish and you know it! That’s exactly what this is all about! In law it’s called “misrepresentation” but then I forgot, you know nothing about the law so I will forgive you for your ignorance. Let me therefore educate you where the law is concerned although I really feel you should have learned all about the law in school as some here have suggested.

When you enter into any agreement, one party is not allowed to "misrepresent" in order to persuade the other party to agree. It’s one of the tenets of contract. If our society were to operate as you seem to suggest, anarchy would reign everywhere rather than just in your mind.



2. How could we know that Storm's plan was not viable or had been misrepresented when ASIC, the Regulator, just 12 months before, examined such and gave it the all-clear?

This one has already been answered dozens of times, but I'll answer it again.

That’s the point! You have never answered it at all and even now you choose to ignored what I asked, but rather have deflectedf the question back to us when that is not the issue. This time it is not about what we did but what ASIC did or rather what ASIC didn't do!

(1) Of course Storm are guilty of misrepresentation – nobody on this forum, least of all me, has said any different. After all, Storm led you to believe that their strategy was conservative, when in fact it was aggressive and highly risky. That alone was clearly a case of misrepresentation.
Nor have we said that it was OK for them to misrepresent the facts.

But your question didn’t raise the issue of misrepresentation, your question was ‘Were Stormies justified in relying entirely on their Storm Financial Advisers’?
The answer to that question is clearly No – instead of accepting Storms plan at face value, prospective clients should have thoroughly evaluated the strategy before committing big money to it, much of it borrowed. 75% of prospective Storm clients did so, and walked away. 25% didn’t bother, and got caught as a result.
You don’t build a shopping center because someone tells you what a great investment it will be, you don’t buy a car or an investment property or a business because someone tells you how good it is. You listen to their views, but then do your own research and evaluation before committing your money. Stormers should have done the same instead of relying entirely on their Storm advisers. It’s called being astute and thinking for yourself.


(2) Storm misrepresented the facts in more ways than one, the simplest and most obvious example being in leading you to believe that a highly aggressive and risky strategy was safe and conservative.
If you’d conducted the simple research of looking at past market slumps, and considering how a similar slump would affect you, you would have known that Storm were deceiving you in selling their plan as safe and conservative.
Regardless of whether they were approved by ASIC or the FPA or whoever, a bit of simple research on your part would have revealed that Storm were misrepresenting the truth, and their plan was unviable.

Just for the record....In no way do I dismiss the responsibilites that financial advisers have to their clients. Storm clearly didn't live up to their responsibilities.
So sue the former owners of Storm, and perhaps the advisers who worked for them.

 

[SJG1974]

Frank,

I appreciate you taking the time to answer the questions.

But I must say I am still confused.

Not at all! During that period Storm’s clients were asked to bolster their investments to off-set market falls. After all, this was the Storm strategy that had been agreed to by us. If everything was as bad as you say it was, wasn’t it Storm’s responsibility as our financial advisers to monitor the markets and take any remedial action that they deemed necessary long before they did?

The Storm setup was such that it was nigh on impossible to establish what the true position was because Storm did not have the software to do so. Of course, we didn’t know that at the time!

We know Storm stuffed up Frank. We all accept that and I for one hope they pay. And in no way do I excuse their or the banks actions on any illegal wrongdoings. But again, you have completely wiped your hands of any responsibility you had with your own money.

I take it from your post that you didn’t know your portfolio was losing value by the day until the very end? That you never received statements from Colonial, never logged onto the Internet to see how it was going, never once saw the headlines in the paper shouting that so many billion dollars had been wiped off people’s superannuation portfolios, and never once wondered what was happening to your money during this time?

You claim you didn’t understand shares. But you knew you had them. And yet when the All Ordinaries was shown on the nightly news losing another couple of percent a day, you never even thought you may be losing money? You never even thought to check?

There is a big difference between a conservative strategy that doesn’t want to put your money at risk and double gearing into shares. A massive difference. In your case, in excess of $1 million dollars difference. And yet you couldn’t see this difference until you were completely wiped out? All through the GFC you couldn’t see this difference…how much money did your conservative portfolio have to lose before you worked out it wasn’t conservative after all? 20%? 30%? 50%? 100%?

You see Frank, if I wanted a conservative strategy, and I saw my portfolio fall by say 20% in a matter of months (which is what the sharemarket did between late 2007 and March 2008- and bear in mind yours would have fallen by much more given the power of gearing), then I would be on the phone to my adviser asking him what the **** was going on and how the **** could my conservative portfolio lose so much money in such a short space of time. And I would have accused them of misrepresenting the risks, and I would have asked them to take my money out. And I would have had a go at them about getting a refund of my fees. And I would have sought legal action then and there to recover my losses. I wouldn’t have agreed to go back to the bank and borrow more to plonk on shares. That much I can assure you.

I would have done everything imaginable to get out of a strategy that I didn’t want to be in, and be compensated for being misled then and there. I would not have waited until it was all gone.

It should also be remembered that it only became a “high risk” one because Storm did not have the inbuilt safety devices they claimed they had in place, and they did not take the appropriate action when they should have done!

No Frank, it was high risk the day you signed your life away. It doesn’t matter what triggers are in place to try and protect your money. If you wake up one morning and the sharemarket is down 20% like it was in 1987, it doesn’t matter what trigger points you have. So it wasn’t Storm’s inaction that made it risky. It was just risky. Full stop.

You have been kind enough to attempt to answer my questions, so I will answer yours.

You wanted to know how you could have been expected to see through all of this even when ASIC couldn’t? Well, for a start, you didn’t need to see through all of it. All you needed to see was that gearing into shares is not conservative. That’s all. Because as you have stated, you wanted low risk. If you had have known it was high risk, you would not have gone there.

No one is saying you and other Stormies should have been able to uncover the intricate deals and relationships that Storm had with others behind the scene. Its ridiculous to suggest you should have been able to see through all of that. I am not even sure that it is ASIC’s role to do that (it could be, I don't know...I haven't really got much interest in what they do) But as we have heard and seen, they have a history of incompetence so it is hardly surprising that Storm slipped through the net.

The strategy itself was not illegal. It was high risk, but not illegal. I doubt it is ASIC’s job to quash every high risk strategy that is out there, because there will always be people willing to take the risk. That was the case with Storm…we have heard from some Stormers that they knew the risks and went ahead. And I am sure that Storm would have been meticulous in taking file notes, in noting down that the risks were explained to the clients and they wanted to take these risks. At the end of the day, you signed every page of the SoA saying you understood the risks, it isn’t ASIC’s job to go out and questions every Storm client as to whether they really understood what they were doing. It has become he said/she said…Stormers saying they didn’t understand and Storm itself saying they did. Who do we believe???

But what YOU should have been able to see was the difference between the low risk you wanted and high risk. Because there is a difference…a massive difference….you know that now I’m sure.

Its been said probably one hundred times but I will say it again. Some simple independent research by you would have uncovered the fact that this wasn’t low risk at all….and that should have been enough for you to stay away. Like it or not Frank, you dropped the ball on that one.