Storm Financial Group

[Garpal Gumnut]

Their investment concept as much as I can glean was to

margin on margin

pyramid as the bull market moved up

not to have appropriate stop losses.



Fountains in the vestibule, fancy dunnies with gold plated handles and a qualification in Financial Advice does not make for a safe harbour for one's hardearned money.

The money is gone.

Gone with the bear, through a zillion zeros and ones on thousands of computers.

All the junk law and prayer will not bring it back.

Banning financial advisers would seem the way to go.

Just ban the whole lot of em.

gg

 

[donteventryit]

As far as I can tell it is/was this:

Start off with relatively manageable leverage of 50% (against the margin loan) - this would be determined by serviceability. Interest payments for the equity loan and margin loan are drawn from the CMT account. The fee would be borrowed from the equity loan.

This may be from an equity loan, superannaution (if old enough to access), possible from the sale of other investments you may have. The initial amount borrowed would 80% (approx.) be placed into investments and the remaining 20% (approx.) would be placed into a Cash Management Trust (CMT) account.

The tax return from the investment loan are directed to the CMT to help service debt, as well as whatever surplus you currently have in your budget.

From here let the market do its thing (ie go up). Once it has gone up ... say 10% ... sell the profit to the CMT. This will help with future interest payments, and will allow you to gear the rest back into the market (for a fee). Generally done 2:1, for every dollar of cash borrow two dollars from the margin loan to maintain the current margin loan ratio.

This is done progressively to churn the fees out of you (which are also borrowed).

In future years, prepay the interest on the Margin Loan from the CMT account.

Rinse and repeat.

Soon, the investment needs to grow by double digit percentages per annum just to afford the interest bill.

Not only this, but the retirees that were geared, were also drawing income from the CMT - taking them closer and closer to a margin call ... Not very sustainable, unless you're in a never-ending bull market.

I think the problem was that Storm allowed the Margin Loan LVR to dictate the investment strategy, not taking into account other debt (equity loans) that clients had. Which is why so many are now in negative equity positions.

Anyone feel free to point out where I'm wrong or ask for clarification.

 

[Garpal Gumnut]

Their investment concept as much as I can glean was to

margin on margin

pyramid as the bull market moved up

not to have appropriate stop losses.



Fountains in the vestibule, fancy dunnies with gold plated handles and a qualification in Financial Advice does not make for a safe harbour for one's hardearned money.

The money is gone.

Gone with the bear, through a zillion zeros and ones on thousands of computers.

All the junk law and prayer will not bring it back.

Banning financial advisers would seem the way to go.

Just ban the whole lot of em.

gg

As far as I can tell it is/was this:

Start off with relatively manageable leverage of 50% (against the margin loan) - this would be determined by serviceability. Interest payments for the equity loan and margin loan are drawn from the CMT account. The fee would be borrowed from the equity loan.

This may be from an equity loan, superannaution (if old enough to access), possible from the sale of other investments you may have. The initial amount borrowed would 80% (approx.) be placed into investments and the remaining 20% (approx.) would be placed into a Cash Management Trust (CMT) account.

The tax return from the investment loan are directed to the CMT to help service debt, as well as whatever surplus you currently have in your budget.

From here let the market do its thing (ie go up). Once it has gone up ... say 10% ... sell the profit to the CMT. This will help with future interest payments, and will allow you to gear the rest back into the market (for a fee). Generally done 2:1, for every dollar of cash borrow two dollars from the margin loan to maintain the current margin loan ratio.

This is done progressively to churn the fees out of you (which are also borrowed).

In future years, prepay the interest on the Margin Loan from the CMT account.

Rinse and repeat.

Soon, the investment needs to grow by double digit percentages per annum just to afford the interest bill.

Not only this, but the retirees that were geared, were also drawing income from the CMT - taking them closer and closer to a margin call ... Not very sustainable, unless you're in a never-ending bull market.

I think the problem was that Storm allowed the Margin Loan LVR to dictate the investment strategy, not taking into account other debt (equity loans) that clients had. Which is why so many are now in negative equity positions.

Anyone feel free to point out where I'm wrong or ask for clarification.

There is a retraction of sorts by Storm in today's Townsville Bulletin of comments made about the initial Storm spin on litigation proceedings between it (Storm ) and CBA-Colonial.

gg

 

[myusernam]

There's been a bit of talk about the psychology of going with storm so I thought I'd explain how I found myself with them...

I first went to storm and did the education seminars around the time of semptember 11. I was actually in there a day or two after and can remember them running around madly organising clients to throw their money into the market. I then moved away, bought a second house (did really well!).

Had always written them off as too higher fees etc. Was always going to invest directly myself through a direct investment firm like neville ward or commsec direct and save myself commissions. I moved back to townsville in 2006 and only owed $55k on my $450K home at the age of 32. I had a bit of opportunity cost guilt at the rampant gains of the sharemarket over the last few years, and felt quite negative about my super situation as I had been in the military and had a preserved benifit that was locked away and I had to start my private sector super from scratch. I also had relations invested with DalleCourt (same sort of strategy, although perhaps not as aggressive) who had done well.

Coming from Townsville I of course knew people who were with them but had also heard friend of a freind bad reports. These were always vague and I pushed them aside as the usual fear when it comes to this sort of thing. Storm kept creeping back into my consciousness. I went to sydney and noticed that they had spread down there (logo on some big highrise in the city). A cabdriver in cairns waxing lyrical about how good they were, a youngish fellow on a fishing trip retired and living the good life etc.

Eventually I went back and decided that if I was going to gear then I wasn't going to do it alone as I had neither the time nor the stomach for it. I had heard that storm was the biggest single customer of commonwealth margin lending in australia and that they didn't even deal exclusivley with them. I took faith in this and that they had been around in townsville for quite a long time, and they had made a lot of people wealthy. The fact is in townsville a lot of people with money were with them and it gave them some sort of implied credability.

Also 7 percent up front didn't seem quite so bad when you were geared and could easilly hop over the fee step in a rising market (showed us graphs of other investors results) compared with the 4 percent a bank adviser wanted for parrot regurgitating what fund their investment arm said was a buy.

Anyway I can't kick myself forever over one bad decision. I consider myself fortunate in that I am still young, have a higher than average income, can still invest some money into the sharemarket and will be able to rebuild. I had to shut everything down myself (storm wanted me to stick around geared at over 90 percent). I certainly would have stop loss coverted to cash beforehand if I had known of my situation, but had placed my faith in them as I had paid lots of money for them to be my guide, and trusted that they had dealt with situation like this before. If I was a retiree then I would certainly look at bankruptcy. There are worse things. For all those who quote greed etc - I dont beleive I am greedy. The oldies I see in the waiting rooms there are not flashy or extravagent for the most part. They just saw a (formerly) successfull firm and thought they were doing the best thing for themselves.

Imagine now owing a huge sum before you are back to having nothing. Renting, paying off a margin loan with no asset before you can then save to buy a house. Now imagine if your'e 60. For storm to quote retiree's positions as selling their houses and living in caravan's as "not that bad" or blaming the market is just plain wrong. To be a storm client they made you fill out a risk profile and would only take you if you fell into the low risk category! Marriages will be broken not just now, but in decades to come as financial hardship eats away at peoples happiness.


I hope the advisers have trouble sleeping, not for peolpe like me, but the retirees.

 

[Julia]

Myusernam, thanks for describing your experience. The sad irony in your situation is that - had you had the initial confidence to get into a small level of margin lending on your own - you undoubtedly would have been better off.
All the best for a recovery. As you say, much tougher for the retirees.

 

[chrisgee]

There's been a bit of talk about the psychology of going with storm so I thought I'd explain how I found myself with them...

I first went to storm and did the education seminars around the time of semptember 11. I was actually in there a day or two after and can remember them running around madly organising clients to throw their money into the market. I then moved away, bought a second house (did really well!).

Had always written them off as too higher fees etc. Was always going to invest directly myself through a direct investment firm like neville ward or commsec direct and save myself commissions. I moved back to townsville in 2006 and only owed $55k on my $450K home at the age of 32. I had a bit of opportunity cost guilt at the rampant gains of the sharemarket over the last few years, and felt quite negative about my super situation as I had been in the military and had a preserved benifit that was locked away and I had to start my private sector super from scratch. I also had relations invested with DalleCourt (same sort of strategy, although perhaps not as aggressive) who had done well.

Coming from Townsville I of course knew people who were with them but had also heard friend of a freind bad reports. These were always vague and I pushed them aside as the usual fear when it comes to this sort of thing. Storm kept creeping back into my consciousness. I went to sydney and noticed that they had spread down there (logo on some big highrise in the city). A cabdriver in cairns waxing lyrical about how good they were, a youngish fellow on a fishing trip retired and living the good life etc.

Eventually I went back and decided that if I was going to gear then I wasn't going to do it alone as I had neither the time nor the stomach for it. I had heard that storm was the biggest single customer of commonwealth margin lending in australia and that they didn't even deal exclusivley with them. I took faith in this and that they had been around in townsville for quite a long time, and they had made a lot of people wealthy. The fact is in townsville a lot of people with money were with them and it gave them some sort of implied credability.

Also 7 percent up front didn't seem quite so bad when you were geared and could easilly hop over the fee step in a rising market (showed us graphs of other investors results) compared with the 4 percent a bank adviser wanted for parrot regurgitating what fund their investment arm said was a buy.

Anyway I can't kick myself forever over one bad decision. I consider myself fortunate in that I am still young, have a higher than average income, can still invest some money into the sharemarket and will be able to rebuild. I had to shut everything down myself (storm wanted me to stick around geared at over 90 percent). I certainly would have stop loss coverted to cash beforehand if I had known of my situation, but had placed my faith in them as I had paid lots of money for them to be my guide, and trusted that they had dealt with situation like this before. If I was a retiree then I would certainly look at bankruptcy. There are worse things. For all those who quote greed etc - I dont beleive I am greedy. The oldies I see in the waiting rooms there are not flashy or extravagent for the most part. They just saw a (formerly) successfull firm and thought they were doing the best thing for themselves.

Imagine now owing a huge sum before you are back to having nothing. Renting, paying off a margin loan with no asset before you can then save to buy a house. Now imagine if your'e 60. For storm to quote retiree's positions as selling their houses and living in caravan's as "not that bad" or blaming the market is just plain wrong. To be a storm client they made you fill out a risk profile and would only take you if you fell into the low risk category! Marriages will be broken not just now, but in decades to come as financial hardship eats away at peoples happiness.


I hope the advisers have trouble sleeping, not for peolpe like me, but the retirees.

Thanks for sharing this story, In my previous post I talked about my friends who "retired" and now face trying to "buy' their house back in their late 50's.
I just spent the last few days travelling to see them and trying to help and settle them down regarding all the "money" they have lost.

Looks like their debts are bigger than they first told me. They have refused to seek any independant advice and believe that the problems are caused by Comm Bank/Colonial & the Market and not by Storm and that Storm have said it was caused by a "Black Swan" market event.....What ever that is... Maybe it should be called a "Brown Swan" event because that's the color everything is turning :fan They seem to believe that when Storm win their case against the Comm Bank all will be fixed up.

I recommended that they seek independant advice, I have no idea how they will get out of this. Maybe they know something I don't.

To me their belief in Storm is almost religious :fish:, now I'm starting to see why things started to go wobbly.

chris

 

[Solly]

There is a retraction of sorts by Storm in today's Townsville Bulletin of comments made about the initial Storm spin on litigation proceedings between it (Storm ) and CBA-Colonial.

gg

gg is there a noticable vibe in Townsville that there are significant issues that are caused by the Storm crisis?
Are many people really impacted ? Are businesses in trouble..etc ?

Me being so far away from this, it's just a "Storm" in a tea cup in my neck of the woods.....

 

[Garpal Gumnut]

gg is there a noticable vibe in Townsville that there are significant issues that are caused by the Storm crisis?
Are many people really impacted ? Are businesses in trouble..etc ?

Me being so far away from this, it's just a "Storm" in a tea cup in my neck of the woods.....

To my knowledge there are 4 different groups affected by Storm in Townsville.

1. People like myusernam who are young and working and have lost a lot, in secure jobs eg Public Service/ Army, who will recover.

2. Retirees, near retirees who have lost a lot and won't recover. They will have to sell their homes and live on a pension in rented accomodation.

3. A large number of folk from 1 and 2 who have lost a moderate amount e.g. $40-80,000 whom it won't affect.

4. The very rich, major business people in the region, farmers and "identities" about the area who are geared up to their gills. They will lose the lot, farms, businesses, reputations.

They reckon it will have the same effect on the region as if all tourism stopped for 12 months.

Sorry I cannot be more specific.

gg

 

[Julia]

I recommended that they seek independant advice, I have no idea how they will get out of this. Maybe they know something I don't.

To me their belief in Storm is almost religious :fish:, now I'm starting to see why things started to go wobbly.

chris

Chris, you've done everything you can. Sometimes you can't save people from themselves.

To my knowledge there are 4 different groups affected by Storm in Townsville.

1. People like myusernam who are young and working and have lost a lot, in secure jobs eg Public Service/ Army, who will recover.

2. Retirees, near retirees who have lost a lot and won't recover. They will have to sell their homes and live on a pension in rented accomodation.

3. A large number of folk from 1 and 2 who have lost a moderate amount e.g. $40-80,000 whom it won't affect.

4. The very rich, major business people in the region, farmers and "identities" about the area who are geared up to their gills. They will lose the lot, farms, businesses, reputations.

They reckon it will have the same effect on the region as if all tourism stopped for 12 months.

Sorry I cannot be more specific.

gg

I hadn't realised Storm's tentacles had spread so far. Awful.

 

[Gerkin]

To my knowledge there are 4 different groups affected by Storm in Townsville.

1. People like myusernam who are young and working and have lost a lot, in secure jobs eg Public Service/ Army, who will recover.

2. Retirees, near retirees who have lost a lot and won't recover. They will have to sell their homes and live on a pension in rented accomodation.

3. A large number of folk from 1 and 2 who have lost a moderate amount e.g. $40-80,000 whom it won't affect.

4. The very rich, major business people in the region, farmers and "identities" about the area who are geared up to their gills. They will lose the lot, farms, businesses, reputations.

They reckon it will have the same effect on the region as if all tourism stopped for 12 months.

Sorry I cannot be more specific.

gg

GG, from reading your posts you seem pretty knowledgable. What do you think will happen to the property market in Townsville, And have you seen any properties come onto the market yet from this storm fallout?

 

[mrfmad]

I am also a storm financial client & agree with above comments.
You all must be idiots to believe in your advisers, media etc etc.
If i had a shop that sold milk, why would i send my customers down the road to buy milk off someone else. So the only person to promote storm would be clients & themselves dont you think.
Storm Clients Pay for their own holidays which is another quoted error.
You people are so ill informed that i will not be taking any of your stock pick advice seriously as i now know you believe in unfounded gossip, & chineese whispers that grow & GROW until this sort of **** is written.
Oh yes & only Townsville clients are going through the **** not everyone else. Oh that was another untrue statement by this forum that its soon to be more (redcliff) it was only people with Colonial loan(Commonwealth) which are in Townsville.
But you all kow so much. Infact every statement on here is wrong a lie or miss informed.
I just cant believe how you get on these forums & know so little but sprout you know all the facts.
Be carefull people on this forum getting advice from these blokes that know everything about nothing.

I am a very happy Storm client & would like to say thank you to Storm for being up front and honest with everyone (clients only) We are all having a hard time with the sub prime & i also hope that this year bring all of us at Storm a great year.

 

[Garpal Gumnut]

GG, from reading your posts you seem pretty knowledgable. What do you think will happen to the property market in Townsville, And have you seen any properties come onto the market yet from this storm fallout?

So far it has made not a huge difference to the property market. No increase in auctions or forced sales at the top end. They will come later towards the end of the financial year.

A new Batallion is being posted in to Townsville later this year.

The mines are starting to lay off people.

So there are good and bad things elsewhere apart from Storm.

I'm not an expert on property ( or anything really I can hear some say lol ) but from what I hear a $400,000 sale would be about $20,000 cheaper now than in September, which is unusual as they usually go up in price in January with all the changeovers in Army/Public Service etc.

So property is probably 5-10% down on 4 months ago from what I hear.

gg

 

[mrfmad]

Re: Ignorance

Why are there so many facing margin calls, losing houses and ruin?
Are you saying it's all Colonial's fault?

My Financial Adviser isn't making headlines in the media......

I suggest you seek another opinion from another financial professional.

Storm has 13500 clients with only 200 affected.
Not a bad % in this sub prime mess dont you think? Which is quoted from the Asic website and they still have found no problems with storms model.
You guys realy have no idea do you?
Its called fear of the unknown & you dont know nothing about Storm do you?

 

[Garpal Gumnut]

Re: Ignorance

Storm has 13500 clients with only 200 affected.
Not a bad % in this sub prime mess dont you think? Which is quoted from the Asic website and they still have found no problems with storms model.
You guys realy have no idea do you?
Its called fear of the unknown & you dont know nothing about Storm do you?

Tell us more mate, I'm just going on what I hear and the fear of folk who have money tied up.

Are they still taking clients on?

Is it business as usual.

In broad terms how is your portfolio now allocated with Storm?

gg

 

[robots]

hello,

spot on mrfmad,

people read a few blogs and they are a professor on Storm, property, sub-prime, investment banking etc etc yet still pulling money box incomes

thankyou
robots

 

[Garpal Gumnut]

hello,

spot on mrfmad,

people read a few blogs and they are a professor on Storm, property, sub-prime, investment banking etc etc yet still pulling money box incomes

thankyou
robots

At least we know what we are now robots.

gg

 

[Gerkin]

Re: Ignorance

Storm has 13500 clients with only 200 affected.
Not a bad % in this sub prime mess dont you think? Which is quoted from the Asic website and they still have found no problems with storms model.
You guys realy have no idea do you?
Its called fear of the unknown & you dont know nothing about Storm do you?

Were you a client who was heavily geared?

 

[-Bevo-]

Asic website says 300 affected who owe more than the value of their portfolios,
I wonder how many not listed in those 300 the other 13200 clients who may have lost a significant amount or have close to zero left?

 

[robots]

hello,

and those who are close to zero with BNB, MFS, Allco, numerous listed trusts, and the other 1000's of three letter codes past or present from the ASX

its all a circus

thankyou
robots

 

[cuttlefish]

The Storm model was hardly unique - it was pretty much the gospel over the past 10 years to use home equity loans to make further investments - be it investment properties or equities. Then for those investing in equities, margin loans were pushed heavily as well.

There are now plenty of people in the same situation as Storm clients - many will have gotten themselves there without any help from financial advisers, others will have gotten there with help from financial advisers.

I feel sorry for the Storm clients but I feel sorry for anyone that has naively over geared against the 'family home' and now faces losing said home - regardless of age - though it is clearly a much tougher situation for those near/at retirement age - its a terrible thing to face.

My main point is Storm clients are hardly alone here - this pattern is playing out across Australia and the world at the moment regardless of whether people were Storm clients or not. This aggressive, debt driven chasing of wealth is exactly what has led to the crisis the world is now facing.

Anyone borrowing against their family home to invest was knowingly taking on risk. Because it was so prolific it is easy to see that people became apathetic about the risks but thats a big step from being unaware there were risks. I find it hard to believe anyone borrowing against their home to make investments wasn't aware there was risk involved in that sort of strategy.

I'm surprised that Storm didn't protect themselves and their clients with derivatives. The relatively small cost of out of the money put options over the indexes would probably have saved them a lot of bother.

If Storm heavily pushed the aggressive, leveraged strategy to people who were at or near retirement age, without warning them clearly of the risks of such a model, that was irresponsible. They should have been tailoring to their clients age, financial situation and appetite for risk. But it doesn't sound like all Storm clients were using this aggressive model though - so I don't know where or what the truth of the matter is.