How an unsuspecting couple fell into financial ruin

BARRY DOYLE and Deanna Doyle had never invested in the stock market, let alone borrowed to do so, when they went to Storm Financial for advice in February 2006.

By InvestSMART · 23 Dec 2010

By InvestSMART ·
23 Dec 2010

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BARRY DOYLE and Deanna Doyle had never invested in the stock market, let alone borrowed to do so, when they went to Storm Financial for advice in February 2006.

In a statement of claim filed on their behalf in the Federal Court by the Australian Securities and Investments Commission, the Doyles say they outlined their retirement needs to the planner, Dean Thompson.

The couple were 62 at the time. Barry was working as a part-time librarian for a council earning $17,540 a year. Deanna had retired from her job in a bakery and was receiving benefits of $7000 a year.

They owned a home in Townsville valued at $450,000, had $640,000 in superannuation and no debt.

They soon found themselves, like about 3000 of Storm's 14,000 clients, with a "double-geared investment" in share trusts.

The statement of claim defines this strategy as an investment purchased using funds advanced under a loan secured against the investor's home and funds advanced under a margin loan.

The funds that were advanced under the home loan, or the shares that were bought with those funds, were used as an equity contribution for the margin loan.

Other assets, such as superannuation, were contributed as part of the equity for the margin loan.

The margin lender took security over the whole investment, including shares bought using the investor's equity contribution.

The claim says that in March 2006, another Storm employee, David McCulloch, advised the Doyles to cash in their superannuation, borrow $360,000 against their home from Bank of Queensland, take out a $650,000 margin loan from Macquarie Bank and invest $1.4 million in a share trust.

The Doyles say they were told this would provide them with an annual income of $65,000 after the servicing of all loans.

Storm quoted a fee of $103,810 to implement the plan.

By May 2006 they had invested the $1.4 million and paid the fee.

In all, they signed up for 11 financial plans over the next two years.

The Doyles invested $2.27 million in share trusts. When the market started falling, the shares were sold for $1.71 million and the margin loan, by then totalling $1.74 million, was repaid in full in January 2009.

The couple was left with a mortgage on their home of $456,000.

The statement of claim says they had no assets other than their home which they could sell to repay the debt. The had no or insufficient income to service the mortgage.

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Frequently Asked Questions about this Article…

Who were Barry and Deanna Doyle and what happened to their investments?

Barry and Deanna Doyle were a retired couple in their early 60s who followed advice from Storm Financial in 2006 to use their home and superannuation to invest in leveraged share trusts. After investing a total of $2.27 million in share trusts and paying large fees, falling markets left them having sold shares for $1.71 million while the margin loan had grown to $1.74 million; they ended up with a $456,000 mortgage on their home and no other significant assets or sufficient income to service the debt.

What is a double‑geared investment and how was it used in the Doyles' case?

A double‑geared investment, as described in the article, combines funds borrowed via a loan secured against the investor’s home with funds from a margin loan so the shares bought with the home loan funds are used as equity for the margin loan. In the Doyles’ case Storm arranged a home loan, a margin loan and contributed other assets (including superannuation) as equity to build a highly leveraged position in share trusts.

Which lenders and advisors were involved in the Doyles’ investment strategy?

According to the article, Storm Financial advisers Dean Thompson and David McCulloch advised the couple. The Doyles borrowed $360,000 against their home from Bank of Queensland, took a $650,000 margin loan from Macquarie Bank, and invested $1.4 million initially in a share trust.

How much did the Doyles pay in fees and how many plans did they sign up for?

Storm Financial quoted a fee of $103,810 to implement the initial plan, and the Doyles went on to sign up for 11 financial plans over the next two years as they increased their exposure to share trusts.

Why did the Doyles end up in financial hardship after investing?

When the share market fell the value of their investments dropped, leaving them to sell shares for $1.71 million while the margin loan had grown to $1.74 million. Repaying the margin loan left them with a $456,000 mortgage secured on their home and no other assets or sufficient income to service that mortgage.

Did the article mention any regulatory or legal action related to the Doyles’ case?

Yes. The article says the Australian Securities and Investments Commission (ASIC) filed a statement of claim in the Federal Court on behalf of the Doyles, outlining the advice and outcomes they experienced.

What risks for everyday investors does this story highlight about using loans and superannuation to invest?

The Doyles’ experience highlights key risks of leveraging: using your home and superannuation as security can amplify losses, margin loans can grow as markets fall, high fees reduce net returns, and retirees with limited income may be unable to service debts if investments fall in value.

What specific advice did Storm Financial give the Doyles about expected income from the plan?

The Doyles say they were told the proposed strategy would provide them with an annual income of $65,000 after servicing all loans; the reality after the market downturn left them without sufficient income to cover the mortgage on their home.