13th Aug 2014
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Recovering from financial oblivion
Author: Kaye Fallick
Recovering from financial oblivion

Mark and Ann Weir were just two of more than 3000 Storm Financial investors whose life savings disappeared after the GFC. They are now facing foreclosure on their family home. So what lessons have they learned from this stressful life event?

When the Global Financial Crisis (GFC) hit at the end of 2008, Storm Financial had captured the imagination the banking industry to the extent that the Commonwealth Bank (CBA) had established a dedicated BSB and branch number for Storm clients who wanted to tap into the equity in their family home and to take out margin loans to invest.

An agreement had been reached with the CBA to confirm that the bank would work with Storm to ensure the safety of its investors. This gave Storm investors like us consolation that, if the markets turned sour, we wouldn’t lose our homes.

But the volatility of the GFC was something to which the young Turks in the banks hadn’t previously been exposed; they weren’t around in 1961 or 1987 and didn’t understand that such volatility could occur.

The first we knew of the closure of the Storm fund was from a phone call in December 2009 from the geared investments department of Colonial, telling us, “Your portfolios has been sold, but there was insufficient equity to cover the margin loan”.

Put simply, we owed the bank $170,000. It was a massive shock as, all through the previous year, we had been in constant contact with our financial planner and were told not to worry, that ‘everything was under control’.

Luckily we still had a self-employed superannuation policy from my days in the taxi industry and we hadn’t placed these funds into the Storm investment. We closed this fund to pay our debt and, by selling at the bottom of the market, ensured we lost another several hundred thousand dollars.

We had drawn down further equity in our home to invest in Storm and so had a further debt of $580,000. Since then we have used our remaining superannuation and a part pension to cover our obligation to Westpac bank. I maintain that Westpac was complicit in the Storm collapse. It had a ‘Storm-specific’ envoy in the Townsville branch, whose designated role was to help people ‘gear up’ to invest in Storm.

I believe that Westpac is now trying to foreclose on my home loan because of my activity with the Storm Investors Consumer Action Group. Ann and I are accumulating debt of $1000 per month, even though we had paid off 60 per cent of this loan back in July 2012. It is only the interest which is accumulating.

Click NEXT to read the life lessons that Mark learnt during his financial ordeal and the advice that he has to offer.

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    COMMENTS

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    particolor
    19th Aug 2014
    10:27am
    For all those game enough to Click NEXT !! Good Luck to You !!
    particolor
    19th Aug 2014
    9:26pm
    If You've got a Penny, be Happy with Your Penny !! .
    Because The Wizard that is going to turn Your Penny into Tuppence ,
    Only Wants Your Penny !!
    Adrianus
    19th Aug 2014
    10:36am
    I think too much emphasis is placed on the roll of the "GFC" in bringing this little rort undone. Investors, Advisors, bank johnnies should all be accountable. The art of continually tapping into ones equity to maximise margin call loans is a recipe for disaster. Always has been, always will be! Nothing clever about it, just plain stupid.
    MICK
    19th Aug 2014
    4:15pm
    Whilst I totally agree with your statement Frank what you have left unsaid is that the previous government introduced protections into the parliament which passed into legislation. The current government has seen fit to undo these protections for no other reason than the big banks did not want this sort of accountability......no matter what they did to consumers. This behaviour continues to demonstrate WHO owns this government, and it ain't the voters who elected it.
    Perhaps, as I have indicated to you previously shed light on the facts Frank rather than shield this government from the facts. The misconduct which saw Storm and the CBA send investors broke is set to in the future reoccur. Welcome to government by big business.
    Adrianus
    19th Aug 2014
    8:56pm
    mick, I know you want to put a political spin on this but it has nothing to do with politics.
    In Townsville the sun shines 265 days of the year. I don't think anyone there owns an umbrella. So when it rains people get wet.
    A very lengthy period of low interest rates and steady real estate increases had been feuling the share market which was posting some good gains and many Storm clients would have made a lot of money.
    You can have all the regulations you want, but it would not have made much difference. Sales people will always sell, investors will become greedy or increase their risk exposure when in their opinion the risk is minimal.
    However, when it comes to falsifying loan documents or over reaching on salesman's licence then that's a very different matter.
    I would love to know what ASIC were doing when all this was hitting the fan, because they , better than anyone else would have had a heads up a couple of years before. Do you think Chris Bowen could have done more to protect investors?
    Polly Esther
    19th Aug 2014
    12:15pm
    Seems some people have gone into the Storm without an umbrella
    rtrish
    19th Aug 2014
    12:31pm
    Good luck, Mark! I'm glad to hear that your family are a support and the centre of your life. Stay strong. Best wishes with the class action.
    morrowj1122
    19th Aug 2014
    12:39pm
    Keep that chin up mark. I remember you from the old Isa days and you had a strong character then too. Cheers John

    19th Aug 2014
    1:37pm
    It's easy to be critical when you weren't subject to the constant bombardment of pressure, encouragement and enticements of the Storm founders and employees.

    I do believe that the Weirs, like many of the Storm clients were financially naive, and too trusting.

    However, that group makes up a very sizeable portion of our society.
    Not everyone is a shrewd, calculating and savvy investor.

    I believe there needs to be more protection in place against banks and financiers predatory behaviour.
    The typical action of banks offering you pre-approved credit card increases, with no examination of your current financial situation, is nothing short of criminal.

    I, too have been the victim of a ruthless bank. Our large family business was foreclosed on by one of Australia's largest banks, with no more reason than, "we have done some computer projections that indicate you may owe us money in the near future that we may not be able to recover".

    This claim was made despite having been in business for 30 years, the business running at a modest profit, having no arrears whatsoever, and the bank holding massive security of $1.6M, against the $1M we owed them.

    This bank demanded immediate repayment (within 48 hrs) of all outstanding loans and monies owing.
    Who can find $1M in cash at 48 hrs notice, unless you're Clive Palmer or Gina Rinehart??

    Accordingly, the bank foreclosed on us and forced us to sell all we owned at fire sale prices. Many assets were sold at 50% of their value.
    Our family ended up with precisely nothing after 30 yrs of asset-building.

    This action taught me numerous things. Be very aware of the T&C's in whatever you sign. Do you realise that your bank can sell you up at 48 hrs notice, with little more than stating spurious reasons? This clause is in many bank and loan contracts.

    Are you aware that banks can revalue your property downwards during a recessionary period and declare you in violation of security levels - and foreclose on you with no more than 48 hrs warning?

    The banks action taught me never to trust any bank ever again. I will never deal with the bank that destroyed me in any form again, ever, and I have dedicated my life to bring that bank down, any time an opportunity presents itself to do so.

    I have found that the only things that truly matter in life, are good health, good friends, and a good partner.
    A modest lifestyle can be enjoyable as it has minimal stress levels.

    Material wealth truly is fleeting and it can be stripped from you in an instant by uncaring, greedy people. The finance and banking industry is comprised of nothing but these type of people.
    MICK
    19th Aug 2014
    4:26pm
    I feel sorry for anyone who ends up in your position Aaron but your story does not appear to stack up. If you were being foreclosed on for no real reason then you have a reason to sue for compensation. And of course the media would take up this story for you too.
    We all know that banks can be bastards and that many have no compassion but if your story is factual and complete then this would constitute behaviour unbecoming and there should be some recourse.
    In terms of investors being skinned you are perfectly correct that many only see the upside without wanting to know about the downside, which when it comes is somebody else's fault. But I am aware that some CBA investors were conservative investors and had specifically asked not to be put into high risk investment. But this was done anyway (because the bank made more money this way) and then documents were shredded so that the dishonest bank could not be caught. They only ended up being found out because the investors concerned kept all correspondence and were able to prove their position. This is how corruption works and the CBA should be forced to now pay out everyone irrespective of whether or not the loss was due to bad investor decisions. This and the bad publicity would be an adequate punishment rather than the selective inadequate offers being made by the bank.
    The real issue is that the Abbott government saw fit to repeal the protections the previous government had put in place. So who is this government working for? That is a lay down misere folks.
    Anonymous
    19th Aug 2014
    11:22pm
    I always have mixed emotions about these cases. To trust a bank to look after your interests would not be totally naive if we were back in the 60's or 70's. Today we know where their interests are - shareholders and their fat executive bonuses. If a reasonable persons jumps over a fence at the zoo into a lions’ cage, not many would give sympathy for their risky action. If you walk into a bank or many finance advisors today are you not being similarly naive about the risk? Should we really show any sympathy?

    When you walk into ANY bank or finance advisor you are in the main talking to someone who NEEDS your money for them to make money. They have about as much idea about investing as you do (and if it is a bank of any flavour - they definitely know less), otherwise they would be retired or working for themselves.

    Hell, even this Abbott government is telling you they are in the back pocket of the wealth management crews by watering down the consumer protection rules. This should be screaming a warning to everyone! But few will hear and most will just blame the government for any ensuing rip-off they experience. Instead of taking responsibility - and more importantly not using these bank robbers and therefore robbing THEM of revenue - they will keep repeating their mistakes.

    To hand over good hard-earned money that could mean you may or may not retire if you lose it, to someone who needs it so they can take commissions with only their secondary interest being YOU actually making anything just does not make sense to me.

    The CBA head who ran their dodgy wealth management arm just got a $1m pay rise in the last couple of days. That demonstrates the level of customer integrity the banks like CBA have - zero. Number one is their profit - the customer is a poor second (literally). The only wealth they are managing is THEIRS.

    You need to do a lot of research to find the right person to manage your money, and even then you should be using them to train you so you can sack them as quickly as possible once they can no longer educate you further or add any value to the money you are paying them every year.

    So it is always hard to know whether to feel sorry for someone who gets in these predicaments, or just to buy more shares in wealth management companies, because you know the majority of the population are going to continue naively giving money to them forever.
    Adrianus
    20th Aug 2014
    7:05am
    "It's easy to be critical when you weren't subject to the constant bombardment of pressure, encouragement and enticements of the Storm founders and employees."
    Aaron, I was personally responsible for discouraging a few people from entering such arrangements with Storm. So I understand what you mean.
    Anonymous
    20th Aug 2014
    10:20am
    It is even easier to be critical when you fully understand how the finance industry works and refuse to participate except on your own terms.
    btony
    19th Aug 2014
    3:52pm
    I feel sorry for those that have lost, but in the end, who signed on the dotted line with visions of making scads of dosh?
    MICK
    19th Aug 2014
    4:28pm
    You comment is partially correct but not everybody asked for high risk investments. Some asked for conservatives investments and were ignored....until it came time to pay up when the CBA got tough. This is the travesty btony.
    genimi
    19th Aug 2014
    4:57pm
    there is of course that old saying - if it looks too good too be true, it probably is! While not all the investors said give us high risk, many many investors go out for the big returns, there have been so many stories over the years. Does anyone remember the Pyramid Building Society in Geelong?
    particolor
    19th Aug 2014
    5:10pm
    No only the one in Egypt when I was a boy !!
    Adrianus
    19th Aug 2014
    9:28pm
    genimi, that was a fraud case wasn't it?
    genimi
    20th Aug 2014
    1:19pm
    it apparently collapsed due to bad loans in the property sector. Again it was a case of investors going for big returns without being fully aware of the risks. The fraudulent part may have been because the company continued trading and taking new deposits when they knew the company was already insolvent.
    Adrianus
    21st Aug 2014
    8:00am
    I think in those days the Building Societies could take on a loan with a low equity to loan ratio requiring as little as 5% deposit on residential property. The banks now have the same "advantage" of low equity to debt ratio on res. Just another reason why Storm clients got into deep water.
    The lesson is , if you are signing on a margin call loan then think worst case and have at least that much cash on hand to rebalance your agreed debt to equity ratio before you the bank makes the call.


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