As we all wait for definite signs that the market turmoil is abating, the most common advice emanating from advisers is batten down the hatches as the worst is not yet over.
While such a suggestion may provide a watered down doom and gloom picture for the next few months, if nothing else was learnt from the past year, it’s expect the unexpected.
Just last week the financial future of planning firm Storm Financial came under the microscope after the company entered into voluntary administration.
The firm has suffered financial stress after its relationship with Commonwealth Bank of Australia’s (CBA) margin loan division, Colonial Geared Investment, called upon Storm to repay its clients’ outstanding margin loans.
ASIC commenced an investigation into Storm on December 12, 2008, in connection with margin loans and related advice to Storm’s clients.
The corporate watchdog’s investigation found about 3000 Storm clients had entered into a margin loan for market-linked investments.
ASIC found over 450 clients owed their margin lender more than the value of their portfolios, equating to about $30 million.
Newspaper reports suggest CBA gave Storm 24 hours to repay clients’ outstanding loans, leaving company executives little choice but to surrender the company to administrators.
Storm’s administrators, Worrells Solvency and Forensic Accountants partners Rajendra Khatri and Ivor Worrell, were appointed to the group on January 12, an ASIC spokesperson said.
It would now seem Storm’s original 450 affected clients may now balloon to close to 15,000 clients – the total number of clients serviced by the national planning firm.
While the FPA has moved to assure Storm clients that its referral service will remain up and running, what assurance or protection mechanism, if there is any, is now available to the clients who did not take up a margin loan facility?
Is there money safe from any potential creditors?
Whispers have been heard within the industry that Slater and Gordon may mount a class action case on behalf of clients, though confirmation on any action or client numbers is not yet known.
Is there anything to say that in a different market Storm and its margin loans would be buoyant?
Is the potential collapse of Storm an indication of how fragile the market still is or merely poor communication between the firm and CBA?
Only time will tell if these and other questions are answered.
On a lighter note, we felt the first edition of IFA for 2009 was a good time to start afresh.
This edition marks a new era for IFA, with the magazine undergoing a makeover.
While the redesign has more been about tweaking, we hope you enjoy the fresher look of your weekly dose of IFA.
