Storm Financial Group

[DocK]

Here's the quote (must have been too long for 1st post)

The Storm Financial model represents variations on a theme of the two-tier property marketing scam. The model would have been impossible without bank funding, especially from the CBA. Without the CBA, other lenders (especially Bank of Queensland, Macquarie Bank) could not have joined in as marginal vultures. I have a colleague who is of the opinion that the CBA was the driving force in the transformation of Storm Financial from a two-bit provincial outfit to the large-scale ‘get rich quick’ enterprise; this is a not unreasonable proposition.

As I have written elsewhere:

‘The bank had been involved with Storm since 1994, but the transformed Storm was evidently viewed within the bank as a profit bonanza. The CBA fuelled Storm’s fantasy – home loans, margin loans through subsidiary Colonial Geared Investments, and ‘wealth management’ of the loans into index funds through Colonial First State. … The CBA’s desktop ‘VAS’ remote valuation system, introduced in March 2008, gave increasingly generous valuations of client property [albeit vigorously denied by the bank], readily leveraged into a higher margin loan and more fees for Storm. The CBA extended Storm clients’ loan to valuation ratio to an unprecedented 80% plus 10% ‘buffer’, and a unique office outlet was established in Townsville to service Storm business. The Colonial arms even paid for a ‘gala ball’ in Italy in 2008 for the smooching of clients. Such was the success that the CBA yearly raised sales targets of the Storm-servicing cell, including for 2008-09.’

The CBA effectively defaulted the whole Storm apparatus in late 2008 (Storm went into administration on 9 January 2009). It sold many Storm clients’ portfolios without them receiving a margin call (the haggle over who was responsible for the margin calls is an irrelevant diversion). It unilaterally dropped the loan to valuation ratio on Storm loans from 80% to 70% in early December, triggering margin calls to clean out any remaining Storm clients. On 10 December the bank unilaterally shut down all Storm-badged products. Yet, as late as 29 October, the bank lent Storm a further $10.165 million to pay out a debt to Macquarie Bank and ‘provide funding for further acquisitions’ (Ripoll Storm Report, p.200). As the dominant lender, the CBA was ultimately in control of the whole Storm apparatus, indifferent to (benefiting from?) the loose cannon that was the Storm’s modus operandi.

The CBA has (atypically) acknowledged some culpability regarding its involvement, which has performed valuable service in quelling any potential political hostility.

http://www.independentaustralia.net/2012/independent-australia-journal/investigations/commonwealth-bank-drives-investors-into-a-storm/

 

[Lone Wolf]

Hi Lone Wolf!

I've just finished my coffee!

Once again a very thoughtful reply. We agree on a number of points and where we differ you have explained your reasons fully. I can ask no more than that.

One last thing though. There are many (and you are one of them I surmise) that have assumed that the people that invested in Storm didn't do their homework beforehand. If they had, they would have avoided this mess, you believe! In fact the majority of people did shop around for investment advice including Helen and me.

The insidious thing about Storm was that its strategy did appear sound. People tend to forget that Storm sold us something that turned out to be fiction rather than fact. They told us lies and did not do what they said they would do. How does one allow for that? That's why the directors of that firm have now been charged with deceptive and misleading practice as too have the banks.

And this is where we diverge again.

Most Storm clients say they thought this was a safe, conservative strategy. While I can accept the argument that Storm clients didn't feel the need to do their homework due to trusting in the expertise of their advisors, I can't for a moment believe the claim that Storm clients thoroughly researched the strategy themselves. It doesn't take many calculations to work out the potential risks of borrowing large sums of money to invest in an instrument that has previously had sudden and severe falls.

If you were after higher reward and were willing to tolerate higher (but controlled) risk I could possibly understand. If you trusted your adviser and didn't do your own research I'd understand. But I can't imagine what could possibly convince you (after thorough research) that this strategy was conservative. So we'll have to agree to disagree on that. However, I will end by saying that this is only my opinion which is based on what I now know. I wasn't there to hear exactly what lies you were told or what research you really did. So although I have my own opinion on the matter, I do have to admit that I could be wrong.

Once again Frank, disagree as we might, I honestly do wish you well and hope that there comes a time when everyone affected can put this behind them and move on with their lives.

 

[bunyip]

And this is where we diverge again.

Most Storm clients say they thought this was a safe, conservative strategy. While I can accept the argument that Storm clients didn't feel the need to do their homework due to trusting in the expertise of their advisors, I can't for a moment believe the claim that Storm clients thoroughly researched the strategy themselves. It doesn't take many calculations to work out the potential risks of borrowing large sums of money to invest in an instrument that has previously had sudden and severe falls.

Exactly.....a quick perusal of past market slumps and a few figures done on a pocket calculator would have revealed the shortcomings of the Storm strategy, and warned Storm investors of the deadly risk they'd be taking.
Very few if any Storm investors appear to have done that, preferring instead to believe the sales pitch that it was a conservative strategy with effective safety nets in place.

There seems to be a misconception among some people that researching a stock market investment is difficult and complex and requires sophisticated knowledge and ability.
It doesn't - the stock market is one of the simplest of investments to research when index funds are the investment vehicle. All the information to make prudent choices is readily available to anyone willing to spend a small amount of times accessing it.

Storm investors simply didn't do their homework, apparently believing that it wasn't necessary. I still shake my head in amazement that people at or near retirement age would risk their homes and commit huge amounts of borrowed money to an investment without thoroughly looking into it first. Particularly when the investment vehicle chosen has a well documented history of wild plunges.

 

[bunyip]

The insidious thing about Storm was that its strategy did appear sound.

Frank

Storm’s strategy may have looked sound to you and the other Storm investors.
But the strategy must have looked anything but sound to many of the 75% of people who reportedly walked away after consulting Storm.
I believe you would have been among this 75% if you’d properly assessed the strategy by looking at past market crashes and asking yourself some ‘what if’ questions......

‘What if’ the market crashes 25% in one day like in 1987 – what effect will that have on my proposed 2 million dollar investment?

‘What if’ the banks suddenly call in my loan when my portfolio is down by half a million or one million dollars – can I cope with that?

What if’ the market takes 25 years to recover its losses, as the US market took to recover after the 1929 crash?

‘What if’ I wake up one morning to find the market opens 20% lower than where it closed the previous day, as it did in 1987 – will Storm’s safety triggers save me from catastrophic loss in that situation?

‘What if’ gearing works against me instead of for me – how much will that magnify my losses if the market turns seriously bearish?

To those who chose to place their faith in Storm without researching the strategy and asking some ‘what if’ questions, I can see how they thought the strategy was sound.
But to anyone who bothered to do a small amount of research, crunch a few numbers, and consider the very real possibilities that I’ve outlined above, the Storm strategy was clearly an accident waiting to happen.

 

[Frank Ainslie]

+1 Well said Frank.



Thanks for that link Harlequin - it made for enlightening reading! I thought this bit deserved a direct quote as it speaks to the idea that the banks were simply carrying out business as usual and not an intrinsic, if not essential, component that the strategy revolved around: (see next post)

Hi Dock,

I suspect that from here on in, the CBA, Macquarie Bank and BOQ are going to unravel at a rate of knots. With all the evidence that has been gathered how the heck are they going to defend themselves? There are reputations on the line here. If this goes the full distance it's going to be a PR nightmare for these banks. Surely, commonsense will prevail in their Board rooms!

If they are waiting for us to blink they are mistaken. We have employed some of the best silks in Australia. Bring it on you bastards! What did Sean say! "Until Hell freezes over!"

 

[Frank Ainslie]

And this is where we diverge again.

Most Storm clients say they thought this was a safe, conservative strategy. While I can accept the argument that Storm clients didn't feel the need to do their homework due to trusting in the expertise of their advisors, I can't for a moment believe the claim that Storm clients thoroughly researched the strategy themselves. It doesn't take many calculations to work out the potential risks of borrowing large sums of money to invest in an instrument that has previously had sudden and severe falls.

If you were after higher reward and were willing to tolerate higher (but controlled) risk I could possibly understand. If you trusted your adviser and didn't do your own research I'd understand. But I can't imagine what could possibly convince you (after thorough research) that this strategy was conservative. So we'll have to agree to disagree on that. However, I will end by saying that this is only my opinion which is based on what I now know. I wasn't there to hear exactly what lies you were told or what research you really did. So although I have my own opinion on the matter, I do have to admit that I could be wrong.

Once again Frank, disagree as we might, I honestly do wish you well and hope that there comes a time when everyone affected can put this behind them and move on with their lives.

Okay, Lone Wolf! Explain this! Why would people who have retired after working hard all their lives invest using Storm if they thought what Storm was offering wasn't safe? Storm offered an investment strategy based on a broad front investment policy with safeguards in place to protect our assets. It was one of the largest investment advisory firms in Australia with supposedly millions of dollars in assets to back it up and had a portfolio of clients second to none. Most of the elderly that invested in Storm were ultra conservative because they were aware of the value of a dollar, having worked hard all their lives to save for their retirements. They didn't fritter away their lives on surfboards expecting the workers in this country to foot the bill.

Have we forgotten our "values" in this country? Has "trust" suddenly become a non-acceptable commodity? Are "ethics" dead and buried? Should would-be investors now mutter, "Be afraid! Be very afraid" whenever they pay a visit to a financial adviser? "Yes, Yes, Yes", if our experience is anything to go by.

To get to the bottom of the Storm debacle you need to understand the nature of the bulk of Storm's clientele. They were trusting, honest and reliant on Storm to act ethically with their monies. Instead they were deceived from the start.

Let me remind you and others of what is expected in Law of those that offer goods or services:

• 
  [*]Sellers must accept responsibility for the consequences of their activities and make every effort to ensure that their decisions, recommendations, and actions function to identify, serve, and satisfy all relevant publics: customers, organizations and society.
  [*]Seller's dealings must be honest and fair
  [*]Sellers (professionals) should uphold and advance the integrity, honor and dignity of their profession.
  [*]Sellers must protect the rights of those they deal with.
  [*]Sellers should fulfill their duties in the marketing exchange process.
  [*]Buyers should be able to expect that products and services are safe and fit for intended uses; that communications about offered products and services are not deceptive; that all parties intend to discharge their obligations, financial and otherwise, in good faith; and that appropriate internal methods exist for equitable adjustment and/or redress of grievances concerning purchases.
  [*]Sellers should be aware of how their behavior influences the behavior of others in organizational relationships. They should not demand, encourage, or apply coercion to encourage unethical behavior in their relationships with others.
  [*]

'Let the buyer beware' only applies to those that are in a position to discern at the time they purchased a product or service that such was offered in an honest way and such fulfilled the agreement reached. Short of beating the crap out of financial advisers with a rubber hose, (thousands now exist on our side that would gladly volunteer) what do you suggest?

The principal of contract demands that prime conditions such as "having safe-guards in place" when so stated must be fact rather than fiction. Need I go on? Probably, because I suspect that many will still continue to tout the "you should have avoided what was obviously a scam" line when the jokers involved are marched away in chains.

Until people in the financial sector identify the shortcomings that exist there, investors will continue to be duped because the standards of advice they receive are tainted by self interest and greed. Not by the naivety of investors as some here have claimed but rather by those that lack ethics in our society and use crooked means to defraud others of their wealth.

 

[pilots]

Every time I see the word STORM come up I think of WOOD DUCKS, no matter what law is in place you can not protect the wood ducks from getting screwed. We have living in our street a financial adviser, our street is a very well to do street, the adviser is renting his house and his car is a lease car, he has on most nights clients come to his house, now this adviser is letting people thing he is doing very well when in fact he has NOTHING to his name, yet here we have people putting all there trust in him. What I would like to see is some one go after the sales people that sold this scam and made a **** load doing it, not the heads of the company, go after the guys who conned the people out of there money.

 

[bunyip]

Okay, Lone Wolf! Explain this! Why would people who have retired after working hard all their lives invest using Storm if they thought what Storm was offering wasn't safe?

Frank

No doubt Lone Wolf will give you his opinion. And I’ll give you mine too, since this is a public forum that encourages sharing of views.

Stormers invested using Storm Financial because Storm sold the strategy as a safe and conservative way to personal wealth creation. And Storm investors believed them instead of doing their own simple research that would have revealed the extreme risk in the strategy.

Storm had a good sales pitch just like all good sales people. Some people are sucked in by a good sales pitch, some are not. Unfortunately you were one of the ones who were.

 

[Judd]

I haven't read Frank's posts for awhile because they are too long winded and life's too short but I assume he is banging on about trust.

In regard to trust by all means trust people and institutions if you wish but individuals should not allow that trust to lead to complacency. That is abnegating personal responsibility in my opinion. Companies and organisations have 'trusted" people but they still have fraud controls and even those systems do not work all the time. Households effectively do the same (I hope) when checking bank or credit card statements. So why would it not also apply when investing your funds through any organisation including Storm Financial?

Trust in the Lord and get a signature from everybody else. Sorry, motto of friend who was an auditor.

 

[ASICK]

I think it's a fine thing to fight for your rights, and if you've got the resourses, it makes good sense to do it without a litigation funder. However, in my view, one should run a case on facts, and not on principle - to my mind, in most cases when principle enters the front door of the 'house' of life, common sense jumps out of a side window.

I've read a lot about what the banks have allegedly done wrong, but I've read nothing about the banks' defences, and as a result I feel that readers are getting no more than a lop-sided view of what's really going on.

Lawyers business is law. While they try to win for their clients, winning is clearly not mandatory: There can only be one winner and that means the advice given to the loser has been plainly wrong. I recall a matter brought against my business by two former employees where a magistrate found against them - one of them said to the magistrate, "but our solicitor said the money was owing!" - the magistrate retorted, "I hope you didn't pay for that advice". The lesson? advice tendered is not necessarily right.

I read the profile on the judge and he seems a right leftie - but that shouldn't lead anyone to a conclusion that he's 'soft' on the plight of investors in Storm, in my view, he'll decide on the law and the facts - no more, no less. While I'm sure judges at first instance like to get it right, I'm not convinced they give a hoot if their decisions are appealed.

I'm sure many of us (me included) made investments which we felt were secure and well regulated only to find out those same investments were poorly managed (and sometimes worse) and sloopily regulated within laws which were nothing more than a framework for some (eg. managers) to make fortunes at the total risk of others (eg. investors): We've learnt and I'm sure we can accept how stupid many of us were, 20-20 hindsight is a insight gained only by losers.

But, putting that aside, if some are willing to sue for recovery of losses as a consequence of what they feel is a breach (or breaches) of applicable law/s then I say good luck to those who dare, providing they keep in the forefront of their minds that they should never propel their case on principle, and most importantly, they are prepared to face the financial consequences of a loss.

 

[SJG1974]

Looks like things are heating up again around here!

Been away for a while, and good to see the debate heating up again.

Personally, I don't blame Frank or anyone else for pursuing compensation and chasing after parties who have wronged them. For me, the real bad eggs are Storm Financial for selling a high risk strategy as anything but and falling asleep at the wheel when they were paid (handsomely) to monitor and manage their clients' portfolios. If they had have done their job properly, and done what they said they would/could do, then people may have lost money, but not the whole lot. Period.

Problem is Storm no longer exists, and it can be hard to get blood from a stone. So the banks with their deep pockets are the next cab off the rank. And it would appear from what I have read that they have some serious questions to answer. Fair enough. The courts will decide their guilt and their penalties. I am pretty sure this forum won't have much bearing on that.

But, in my opinion, nothing that Storm or the Banks did should ever cover the real reason as to why Stormers find themselves in the position they are now in....that being that the majority did not take sufficient steps to properly understand how their life savings were being invested. Information on everything is available at the touch of a keypad these days...there is no excuse for not taking the time to do your research, particularly with so much at stake.

If you don't understand it, then make every effort to ensure you do, otherwise don't go there. Or, at the very least, don't commit the farm to it.

 

[Frank Ainslie]

I haven't read Frank's posts for awhile because they are too long winded and life's too short but I assume he is banging on about trust.

In regard to trust by all means trust people and institutions if you wish but individuals should not allow that trust to lead to complacency. That is abnegating personal responsibility in my opinion. Companies and organisations have 'trusted" people but they still have fraud controls and even those systems do not work all the time. Households effectively do the same (I hope) when checking bank or credit card statements. So why would it not also apply when investing your funds through any organisation including Storm Financial?

Trust in the Lord and get a signature from everybody else. Sorry, motto of friend who was an auditor.

Hi Judd,

"I haven't read Frank's posts for awhile because they are too long winded and life's too short but I assume he is banging on about trust."

I'll therefore make this short in view of your limited attention span.

"Trust in the Lord and get a signature from everybody else. Sorry, motto of friend who was an auditor."

Good advice! We did that when we signed agreements! They didn't keep their end of the bargain!I don't think I can make it any simpler than that for you or any shorter!

 

[Julia]

Hi Judd,

"I haven't read Frank's posts for awhile because they are too long winded and life's too short but I assume he is banging on about trust."

I'll therefore make this short in view of your limited attention span.

To be fair, Frank, most of your posts are a repetition of what you have said before.
I get that repeating over and over that you should have been able to trust someone is helpful to you, but perhaps consider that it makes for somewhat tedious reading.

The reality is, and I'm sure you really know this, that we are constantly offered advice by people duly authorised to provide this. That doesn't remove from us, as reasonably intelligent people, the obligation to assess that advice. I get that you were promised all sorts of safeguards etc, but the basic premise that you could consider borrowing so heavily against your home, using those funds to buy into the market, and then further gearing on those borrowed funds to be a 'safe, conservative strategy' lacks credibility, at least for someone at or near retirement.

 

[bunyip]

There are many (and you are one of them I surmise) that have assumed that the people that invested in Storm didn't do their homework beforehand. If they had, they would have avoided this mess, you believe! In fact the majority of people did shop around for investment advice including Helen and me.

Frank

I was amused to read your comments above.
Particularly in view of the fact that just a couple of months ago you admitted that you should have sought advice from more than one firm.
And you admitted the fact that you never went down this path was a major failing on your part that is inexcusable
And you admitted that your failure to apply some commonsense and test Storm’s plan independently cost you all that you had in the end.

Refer to post 7222 on page 362 if you'd like to read more of what you said.
Suffice to say that what you said back then was very different to what you're saying now.

I have to tell you Frank, you do seem rather confused at times.

 

[Reasons]

Trust is an interesting word as it is not normally given if there is substantial risk without a track record known intimately by a person. People usually allocate trust based on different risk levels...

• At a low level, we trust a parking meter timer is accurate so that we don't get back late and fined, but the risk to our financial future is not destroyed if it isn't and we are fined - and next time we are circumspect about all parking meter timers.
  
  
• At a higher level we trust that schools are teaching our kids properly, but if we have any respect for our children's educational outcomes, we are constantly diligent and monitoring the competence and ability of the teachers and that school initially to deliver expected outcomes. We then continue to do so on an regular basis, checking to make sure that our trust remains well allocated as it is critical to our children being able to go to uni or whatever and we are getting a commensurate return on the investment.
  
  
• When it comes to our life savings it becomes quite critical that trust is only allocated at an empirical level - what have YOU determined about this company's credentials and investing strategy that gives them the absolute right to earn your trust to invest your money with sensible levels of risk.

The Dictionary Definition of Trust...

Trust [truhst] noun
1. reliance on the integrity, strength, ability, surety, etc., of a person or thing; confidence.
2. confident expectation of something; hope.
3. confidence in the certainty of future payment for property or goods received; credit: to sell merchandise on trust.

The definition itself is split into HOPE (a desire, want or need) and ABILITY (proficiency, expertness).

• If you relied on the integrity of a company and HOPED that you would get whatever vision they told you at face value without recognising what trust actually means - I am sure you lost a lot of money.
  
  
• If you did due diligence on their ABILITY by closely checking that the advice they provided did not put you at significant risk for your age and asset allocation, I am equally sure you would have not lost much money.

Trust, in things that matter greatly to us, is earned through track record and detailed understanding of someone’s ABILITY.

Trust cannot be blindly bought and abdicated to others - that is confused trust - and at its best could be called HOPE.

 

[Lone Wolf]

The objective of discussion isn't for one side to win. The objective of discussion should be for both sides to understand each other. It therefore saddens me greatly to read this post from you which misses my point by so much that it seems deliberate. Then you proceed to reiterate the points we've already gone over at length in previous posts. And I thought we were doing so well.

Okay, Lone Wolf! Explain this! Why would people who have retired after working hard all their lives invest using Storm if they thought what Storm was offering wasn't safe?

To summarise, I said - "Storm clients believed they could trust their advisors and therefore they didn't feel the need to do their own research. Had they done any research into the strategy for themselves they would have realised that it was not at all conservative." You responded with - "Explain this! Why would people invest in something they don't believe is safe?"

I did just explain that Frank. That was my whole point. They invested because they were mislead into believing that it was a safe strategy. Their advisor lied to them and they believed every word without checking for themselves. I didn’t say clients invested despite knowing the risks. I said they didn’t understand the risks because they didn’t do their own research. Your post does nothing to combat that claim. You simply list all the reasons why clients shouldn’t have needed to do any research of their own. It was unnecessary for you to go over that again as we’ve discussed it already.

Short of beating the crap out of financial advisers with a rubber hose, (thousands now exist on our side that would gladly volunteer) what do you suggest?

As previously suggested, if you don't understand the risks involved, don't do it.

Need I go on? Probably, because I suspect that many will still continue to tout the "you should have avoided what was obviously a scam" line when the jokers involved are marched away in chains.

Indeed they will continue to say that even if the banks are found guilty. If you believe that the outcome of the legal battle will have any impact on my opinion then you really do miss my point completely.

Until people in the financial sector identify the shortcomings that exist there, investors will continue to be duped because the standards of advice they receive are tainted by self interest and greed.

Correction, even after the financial sector is overhauled investors will still continue to be duped because the standards of advice they receive are tainted by self interest and greed. There will always be criminals out there Frank, always. You can allow yourself to be an easy target or you can take simple steps to reduce your risk of becoming a victim. That choice is and always was yours to make.

There is nothing more to be gained here, we've both said everything we want to say. It looks like if we continue we’ll just be reiterating previous points. I'm done.

 

[Solly]

"Storm Financial trial likely to be over by Christmas

A TRIAL over the collapse of Storm Financial has been set back a week but should be over by Christmas."

More @ couriermail.com.au

 

[Vixs]

And this is where we diverge again.

Most Storm clients say they thought this was a safe, conservative strategy. While I can accept the argument that Storm clients didn't feel the need to do their homework due to trusting in the expertise of their advisors, I can't for a moment believe the claim that Storm clients thoroughly researched the strategy themselves. It doesn't take many calculations to work out the potential risks of borrowing large sums of money to invest in an instrument that has previously had sudden and severe falls.

If you were after higher reward and were willing to tolerate higher (but controlled) risk I could possibly understand. If you trusted your adviser and didn't do your own research I'd understand. But I can't imagine what could possibly convince you (after thorough research) that this strategy was conservative. So we'll have to agree to disagree on that. However, I will end by saying that this is only my opinion which is based on what I now know. I wasn't there to hear exactly what lies you were told or what research you really did. So although I have my own opinion on the matter, I do have to admit that I could be wrong.

Once again Frank, disagree as we might, I honestly do wish you well and hope that there comes a time when everyone affected can put this behind them and move on with their lives.

'Sound' and 'conservative' are far from the same. Frank said 'sound', you say 'conservative'.

Be sure to compare apples to apples. Gearing is not part of any conservative strategy I've ever laid eyes on, but it can be and often is 'sound'.

 

[jjtebj12]

More @ couriermail.com.au

There seems to be the same negativity to posts that suggest the bank shouldn't be in the firing line. My situation which isn't the same as others is as follows:

- I had my accountant check it out. He also sought external advice from another party which was positive (this is in writing):
- My Bank which held all my accounts for over 20 years (one of the big 4) and I was told "sound investment as they had many clients investing using this strategy"! Yes they have settled out of court!!!!!!!

I really do not think people on this site understand what happened. Yes it's easy to sit on the sideline and make assumptions however the evidence will be forthcoming in the upcoming trial which will see some on this site understand that we were not "wood ducks" we are real people who in my case did seek advice from many professionals.

I sought advice from professionals.

 

[Lone Wolf]

'Sound' and 'conservative' are far from the same. Frank said 'sound', you say 'conservative'.

Be sure to compare apples to apples. Gearing is not part of any conservative strategy I've ever laid eyes on, but it can be and often is 'sound'.

Most of the elderly that invested in Storm were ultra conservative...

I could also trawl trough the thread to find where Frank stated that the strategy itself was sold to him as conservative, but it's not worth my time.

Apart from having a go at me for not comparing apples to apples, everything else you said is correct. Gearing to invest in the markets can in no way be considered conservative. Gearing certainly can be used as part of a sound strategy focusing on higher risk, higher return.