27 November 2020
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Storm clouds

Storm clouds

Peter Switzer
4 September 2009
An inquiry held in Brisbane into the collapse of Storm Financial has searched for the answer to the central question about what happened to Storm and its clients.

Was it a cock-up? A conspiracy? Or just plain old greed? These are the questions posed by The Sydney Morning Herald’s Stuart Washington, and they are good questions, but the answer is — it was all these and more.

The cock-up was that the Storm planners did not conceive of a market falling 50 per cent and, because their clients were so heavily into margin loans, the losses blew them out of the water.

I reckon they have looked at the 27 per cent crash of 1987 and thought that was the worst-case scenario — they were wrong.

Story of greed

It was a conspiracy because the planners ignored their training, their judgement and good sense in conspiring to leave their clients open to so much risk. They had a choice between their clients and themselves — and they chose themselves. If they deny this, then we simply have to say that they were dumb, stupid and should not have called themselves financial planners.

But they weren’t alone — the banks went along for the ride, and were accessories after the fact. However, they were stupid too in allowing their processes to be so out of control that people with limited means were allowed to borrow so much for a punt!

The whole sorry mess was driven by greed. The desire to make big profits for the company, commissions for the planners and wealth for the Storm clients made this sorry story possible.

Case studies

But there is more to say about this.

Storm was infamous for their big upfront seven per cent charges. I came across a story in Brisbane where a widow was to be charged $70,000 for one of these margin loan plans but a lawyer friend referred it to me and I confirmed his suspicions. That was one person saved.

And then we had a potential client who had been given a $70,000 quote and wondered if this was a typical charge for advice. What was irresponsible about this advice was that the planner wanted her husband to cash in his super pension for life with ABC TV, to borrow to get a bigger exposure to the stock market!

No contact

I wrote about these stories in The Daily Telegraph and The Australian and no-one from the Government or ASIC gave me a call or followed up. I think the regulator is picking up its game but it was totally ignorant and/or reckless in looking past the then looming black clouds over Storm’s clients. However, the one thing that worries me is that ASIC still is not even trying to contact me for some helpful feedback.

There have been calls for a Royal Commission into the banks and the Storm affair but that would be a waste of money. The Minister for Financial Services, Superannuation and Corporate Law, Chris Bowen, only needs to talk to some trustworthy industry experts and if doesn’t know any, I will give him the names. He needs to get a big stick and bloody well use it with the small number of crooked financial planners and groups out there.

The crime

Finally, I don’t think anyone at Storm Financial was a criminal but they were over-charging, which is not a crime. And they were putting together dumb and irresponsible plans, which doesn’t carry a jail sentence. It has to be sufficient for those involved to lose their licence or ability to be in financial planning.

The crime is an industry and government one and it has been going on for too long — it’s the crime of ignoring a problem and a lot of naïve people have lost a lot of money because of it.

 

For advice you can trust contact Switzer Financial Services.












Important information:This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. For this reason, any individual should, before acting, consider the appropriateness of the information, having regard to the individual’s objectives, financial situation and needs and, if necessary, seek appropriate professional advice.



 

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