Storm Financial Group

[Judd]

... Because that seems to be at the heart of the whole mess....

Junior has already responded. So it appears that side of an ASIC audit was, at least at that time, just to tick the boxes to ensure compliance and not whether the strategy was risky or not. Maybe, maybe not. I've no idea on that aspect. I am assuming that any ASIC audit of the Company itself has a different perspective and/or objective.

For me, the heart of the matter is a little different. A group of individuals of differing ages, generally of the same intelligence and opportunities, some working, family issues, bills to pay, children to care for, concern about future retirement income. And then there are former clients of Storm Financial. In other words, people no different from anybody else.

So, loans and borrowing aside, why one person can quickly pick up that $7 per 100 in commission just to be placed in an index fund is an absolute and total ripoff and another cannot see that, is where I fail to understand. DocK attempted to explain it but I still cannot get my mind around it. And I say it is at the heart of the matter because if many had been able to identify that at the beginning, they probably would have run away as opposed to merely walking away.

For all the words about needing to trust or not trust, how on earth are investors to be educated in order to be able to identify a ripoff very quickly and not go there? As for risk, show them an interactive chart or table on what happens if gearing is involved or not. But as for the first part, it may not be possible unfortunately. Just a factor in the way each person thinks I suppose.

 

[jjtebj12]

jjtebj12, just a guess but the calculations may not be a simple one.

Here is a link about a secure Storm Financial web-site. Apparently if ASIC has not already contacted you about access, you need to contact ASIC to get the relevant application form to access the site.

https://storm.asic.gov.au/storm/storm.nsf



All the best

Cheers - got hold of further details.

Shouldn't of bothered it is beyond description. Actually it's funny cause 55% is so far removed from the actual offer. Asic should hang their heads in shame. It is worse than Slater & Gordon deal. Asic, Storm, CBA they are all the same - none can be trusted.

 

[DocK]

Junior has already responded. So it appears that side of an ASIC audit was, at least at that time, just to tick the boxes to ensure compliance and not whether the strategy was risky or not. Maybe, maybe not. I've no idea on that aspect. I am assuming that any ASIC audit of the Company itself has a different perspective and/or objective.

For me, the heart of the matter is a little different. A group of individuals of differing ages, generally of the same intelligence and opportunities, some working, family issues, bills to pay, children to care for, concern about future retirement income. And then there are former clients of Storm Financial. In other words, people no different from anybody else.

So, loans and borrowing aside, why one person can quickly pick up that $7 per 100 in commission just to be placed in an index fund is an absolute and total ripoff and another cannot see that, is where I fail to understand. DocK attempted to explain it but I still cannot get my mind around it. And I say it is at the heart of the matter because if many had been able to identify that at the beginning, they probably would have run away as opposed to merely walking away.
For all the words about needing to trust or not trust, how on earth are investors to be educated in order to be able to identify a ripoff very quickly and not go there? As for risk, show them an interactive chart or table on what happens if gearing is involved or not. But as for the first part, it may not be possible unfortunately. Just a factor in the way each person thinks I suppose.

Perhaps the clearest way of explaining the commission issue is this: the upfront commission was much higher than what other financial planners charged, but the ongoing charges and trail commissions were either much lower or rebated back. This had the effect of making the total fees paid lower provided the investment ran for a period in excess of approx 5 - 7 years. Most clients were looking for a long-term arrangement so if all had progressed as outlined it would have been in the client's favour in the long run. Of course, that didn't eventuate for most and there clearly was an immediate benefit for Storm who no doubt envisaged many years of initial commissions to keep the income rolling in.

It's probably fair to say that most clients were either unaware that direct investment into indexed funds was quite a simple thing to do for oneself, or were aware but lacked the ability/confidence/willingness/time to do this for themselves. I realise it's difficult for some on this forum who are used to running their own investments to "get", but there is a large portion of the population who lack either the time/motivation/ability/interest or any combination thereof to attain the ability to manage their own investments. In my case, I certainly didn't know how easy it actually is to directly invest into an ETF or LIC.

There were also, of course, many promises made re management and protection of the investments - but history has shown those were simply never intended to be honoured or became inconvenient to Storm's ultimate agenda. Until it all went pear-shaped Storm were able to point to the many very satisfied clients and excellent results achieved for many investors, in justification of their high up-front fees. It is probably unfair to assume that the average investor blindly handed over their fee without seeing other FPs or doing their sums - I know I ran the numbers and had the GFC not come along to upset our plans we would have been about even fee-wise by now.

 

[ASICK]

ASIC has made it quite clear on a number of occasions that it's not a prudential regulator. For ASIC, it's all about form, nothing at all about substance.

 

[Solly]

Thank you Solly, for your kind invitation to state the username of the person I referred to.
However, I don’t need invitations from you or anyone else. And since I see no point in divulging the username, I won’t be doing so.

Your views about my post being ‘superfluous’ are of no interest to me, since I have little regard for your opinions.

However, if you want to read some truly superfluous posts then I suggest you go back over the many exchanges between yourself and GG in which you discussed flying business class, and booking suites in top hotels so that you could attend the Storm court proceedings. As I read through those posts I gave you both 10 out of 10 for your dilligent efforts to portray yourselves as high rollers with money to burn. Unfortunately I was only able to give you 1 out of 10 for sincerity.

Thank you bunyip,for your response.
It is unfortunate that you declined my invitation and that you have little regard of my opinion. I do have regard for your opinion and views and it is disappointing to me that you prefer to not engage.
I suppose it is because of my craft I find it stimulating to scrutinise when propositions are put forward. I do like to test.

I possess no direct knowledge of GG's financial position and I do not burn money. Your perception, is a matter for you. I find nothing detracting with superfluous posts some may even add value when they entertain with a little irony and deliberate satire.

When the Storm saga is finalised, I will disappear from this forum forever and will cause no more angst.

S

 

[Solly]

Certainly - high life being living a life they could not afford.

As I fully expect to be jumped on I will go on to explain as I have once or twice before. Please excuse the simplicity.

As an example - Couple, both aged 65, $400,000 home unencumbered, $400,000 in super($200K each), $30,000 in the bank. $10,000 contents and $40,000 in vehicles.

They come to us - the advice is to start an account based pension with the super monies and each draw 5% ($10,000pa) and apply for Age Pension.

Expected outcome:

ABP Income $20,000
Centrelink $21,542
Bank Interest $1,500
Total $43,042

Now this is a modest lifestyle but nothing special. You would probably look to maybe kick up the ABP Income a bit. Living within their means however.

SAME CLIENT WALKS INTO STORM.

Advice: Draw 80% from the home ($320,000), Withdraw the super ($400,000). Invest that into Aust Share Index Fund ($720,000). Take out a margin loan with a loan to value ratio of 50% ($720,000). Capitalise all interest.

Investment value = $1,440,000.

Assumed dividend rate on Aussie Shares - 4%, therefore income generated = $57,600

Interest cost of home loan @ 7% = $22,400
Interest cost of margin loan @ 8% = $57,600

Net position = $57,600 - $80,000 = NEGATIVE $22,400 so therefore no tax

I could add in Franking credits but why complicate things.

<snip>

ALL of the storm clients I saw after the event were promised and were taking more than just the cash earnings of the fund. They were living beyond what their REAL (not artificially debt inflated) asset base could and should provide.

They were living lives that had incomes between the 37% outlined and 70-80% more than their peers with the same start point.

I applaud the forensic accountants for taking this into account.

Thank you doobsy for your effort that gives us your comprehensive view. My understanding is that you are of the belief that there is flaw in the strategy, a flaw that may have been well beyond the understanding of the client. If this is a factual representation, who in your opinion is liable for the losses and subsequent collapse?

S

 

[Solly]

"Storm lawyers eye legal challenge

LAWYERS acting for Storm Financial victims are considering a legal challenge against the 11th-hour deal Australia's corporate watchdog struck with the Commonwealth Bank."

More by Rae Wilson @ qt.com.au

 

[doobsy]

Thank you doobsy for your effort that gives us your comprehensive view. My understanding is that you are of the belief that there is flaw in the strategy, a flaw that may have been well beyond the understanding of the client. If this is a factual representation, who in your opinion is liable for the losses and subsequent collapse?

S

Solly

My position I think is clear and has been stated previously.

The strategy was unsound. The strategy was 100% the domain of Storm and its advisers. Taking out Franks arguments of UMIS etc and the people behind the client losses are Storm.

Now let me clarify something. For a long time I have said that the banks lent certain groups of clients (retirees, low income earners) money and they shouldn't have. I am all for them getting their money back. I have seen however plenty of clients who could meet all lending criteria and therefore the lending was legitimate. If it is legitimate then the losses are also in my eyes. The second point is the banks need to address the shamozzle that happened around the margin calls. In a simple sense I think they should be put in a position where had the margin call process be enacted at the correct levels they would have some equity left.

Where does that leave us?

1. Client with legitimate lending - some equity back that is in line with the margin call being triggered and processed correctly.

2. Clients who should not have been lent money against their home - re-imbursed for the debt that should never have happened however sustain losses on any other monies involved.

3. Clients who bought all their own money and did not have property to lend against - re-imbursed for margin call stuff ups to the correct level.

I think the forensic accountants (the ones I have met a smart cookies) have it right. Any additional benefits (higher income levels, return of franking credits, other tax deductions triggered that would not have been available if they hadn't geared so highly) should be taken into account. Plenty of clients have fogotten all the little "bonuses" they got along the way.

The 'flaw' you talk about is my belief that markets don't give people averages, they give them +20% one year and -20% the next. The strategy relied on markets continuing to provide the "average" during what we know was a debt driven, high interest rate to low interest rate, high inflation to low inflation environment perfect for asset price appreciation (see residential housing as well). Who put that strategy together and plugged in those assumptions so their figures looked good? Storm.

 

[Judd]

Perhaps the clearest way of explaining the commission issue is this: the upfront commission was much higher than what other financial planners charged, but the ongoing charges and trail commissions were either much lower or rebated back. This had the effect of making the total fees paid lower provided the investment ran for a period in excess of approx 5 - 7 years. Most clients were looking for a long-term arrangement so if all had progressed as outlined it would have been in the client's favour in the long run. Of course, that didn't eventuate for most and there clearly was an immediate benefit for Storm who no doubt envisaged many years of initial commissions to keep the income rolling in.

Thank you for the clarification, DocK. It was probably not an easy thing for you to go through again.

From your post I gather the presentation was apparently slick. I assume that Storm did not point out that for every “step up” I believe it was called, there would be another 7% fee gouge and the clock would start ticking again and the overall time to reach the breakeven point meant the five years would become six years and so on. All based on an assumption that nothing would go wrong with the plan. Yep, I can now see how that could be sold to individuals with little experience in financial matters. Clever.

And you are correct concerning the lack of awareness about investing. Working part time I do overhear the occasional discussion from my co-workers on the subject. On a face-to-face basis I steer well clear when such matters are raised because I have no qualifications to provide advice and, more importantly, it would not be well received. Learnt that particular lesson long ago.

Thank you again and all the best.

 

[Solly]

Solly

My position I think is clear and has been stated previously.

The strategy was unsound. The strategy was 100% the domain of Storm and its advisers. Taking out Franks arguments of UMIS etc and the people behind the client losses are Storm.

Now let me clarify something. For a long time I have said that the banks lent certain groups of clients (retirees, low income earners) money and they shouldn't have. I am all for them getting their money back. I have seen however plenty of clients who could meet all lending criteria and therefore the lending was legitimate. If it is legitimate then the losses are also in my eyes. The second point is the banks need to address the shamozzle that happened around the margin calls. In a simple sense I think they should be put in a position where had the margin call process be enacted at the correct levels they would have some equity left.

Where does that leave us?

1. Client with legitimate lending - some equity back that is in line with the margin call being triggered and processed correctly.

2. Clients who should not have been lent money against their home - re-imbursed for the debt that should never have happened however sustain losses on any other monies involved.

3. Clients who bought all their own money and did not have property to lend against - re-imbursed for margin call stuff ups to the correct level.

I think the forensic accountants (the ones I have met a smart cookies) have it right. Any additional benefits (higher income levels, return of franking credits, other tax deductions triggered that would not have been available if they hadn't geared so highly) should be taken into account. Plenty of clients have fogotten all the little "bonuses" they got along the way.

The 'flaw' you talk about is my belief that markets don't give people averages, they give them +20% one year and -20% the next. The strategy relied on markets continuing to provide the "average" during what we know was a debt driven, high interest rate to low interest rate, high inflation to low inflation environment perfect for asset price appreciation (see residential housing as well). Who put that strategy together and plugged in those assumptions so their figures looked good? Storm.

Thank you doobsy for your post. I believe that there are a couple of ex-Storm clients who have just started to read this forum again. I appreciate you re-stating your view, especially your assessment of the three categories of client exposure. Hindsight for them is a wonderful thing, the future is still uncertain for them like many others.

Regarding the 'flaw', I have previously put the proposition to them that they did not possess a depth of understanding of the Storm strategy. Their response to me was that they did not hold a firm understanding of the strategy but had a belief that it was sound based on the reassurances that they had received. I hold the view that they still don't fully understand how the strategy was being implemented and why Storm collapsed. They totally but their trust in others. A lesson learned for them and consequences that their family continues to bear.

S

 

[Solly]

"Storm victims unite for day in court
...Now she's on a pension and her home is a caravan parked in the Brisbane backyard of two other Storm victims..."

More by Andrew Fraser @ theaustralian.com.au

 

[Solly]

"Storm banks'motivated by profits': court
Banks were "motivated by profits" when they involved themselves in an unregistered financial scheme that cost investors billions of dollars, a court has heard."

More by Christine Flatley @ finance.ninemsn.com.au

 

[Solly]

"Storm Financial victims to Federal Court
Dozens of investors have arrived at the Federal Court in Brisbane for a hearing into the collapse of Storm Financial."

Source: www.skynews.com.au

 

[Solly]

'"Trial told victims of Storm Financial fed 'nonsense'

BANKS earned huge profits while clients of investment firm Storm Financial lost their life savings, a court heard yesterday.
Mr Myers attacked the Townsville-based operation as a "well-oiled system" like a production line that was highly profitable but also peddled "nonsense" at seminars."

More by Anthony Marx @ couriermail.com.au

 

[Solly]

"Storm banks 'motivated by profits' court told

A court has heard banks were "motivated by profits" when they involved themselves in an unregistered financial scheme that cost investors billions of dollars."

More @ afr.com

 

[Solly]

'Storm treated clients like numbers' ASIC council Allan Myers QC says

The corporate regulator has accused the Bank of Queensland and Macquarie Bank of wanting to "wash their hands" of involvement in the Storm financial disaster.

More by Anthony Marx @ couriermail.com.au

 

[Solly]

"Storm targets "baby boomers"

COLLAPSED financial company Storm Financial targeted "baby boomers" at retirement age and used the lending power of Australian banks "motivated by profit", a court has heard.

More by Rae Wilson @ frasercoastchronicle.com.au

 

[bunyip]

More by Christine Flatley @ finance.ninemsn.com.au

Storm would then effectively double-mortgage these assets by investing the money in indexed funds and margin loans.

I wonder if Christine Flatley can explain how you 'invest money in margin loans'.
I know what she's trying to say, but she didn't say it very well.

 

[bunyip]

More by Rae Wilson @ frasercoastchronicle.com.au

"A person generally not experienced in financial matters but who is comfortably off, in a home not mortgaged or mortgaged to a modest extent and perhaps having other assets such as superannuation, is put into the Storm system,"
he said.

I can understand that Alan Myers, as a lawyer acting for ASIC against Storm and the banks, is trying to make it look as bad as possible for them.
While I agree with some of what he's saying, he makes one statement that's less than accurate when he says that people were 'put into the Storm system'.

I'm sure that lawyers for Storm and the banks will quite correctly argue that rather than being ‘put into the Storm system’, Storm clients joined the system completely of their own free will after approaching Storm, seeing what they offered, and signing every page of the SOA to say they understood the strategy.
No doubt the lawyers for the defendants will also argue that there was no pressure from either Storm or the banks, that prospective clients were encouraged to go away and take time to consider the strategy before making a decision on whether to sign up.

 

[Solly]

Storm spun investors nonsense, court told

STORM FINANCIAL lured investors by peppering them with nonsensical financial information at their seminars, a court has heard.
Allan Myers, QC, representing the Australian Securities and Investments Commission, told the Federal Court in Brisbane yesterday that investors were told they ''can't lose'' if they joined the ''foolproof'' scheme.

Source:smh.com.au