Tears in the eye of the Storm

PORTFOLIO POINT: The Townsville-based storm financial has crushed the investment hopes of its clients, and left them with no way out.
The crisis engulfing Storm Financial, the Townsville planner, is emerging as one of the worst yet witnessed in Australia’s financial advice industry. The disaster is national in scope and has already prompted serious questions about the operation of financial planners throughout the market. The Financial Planning Association has taken the extraordinary step of launching a free referral service for Storm clients; more than 50 independent financial planners have already signed up to the service. Townsville-based Tony Raggatt has reported on the story throughout the year. Today he files a special commentary for Eureka Report.

There are tears in Townsville. Tears of financial ruin among the mostly ordinary working class people who make up this largest northern city of Australia. And some tears too for two of its most successful but now embattled business people, Emmanuel and Julie Cassimatis, who founded a financial planning empire and brazenly called it Storm Financial.

Cases are coming forward almost daily of pensioners and retirees being put into $1–2 million of debt unable to meet their loan obligations.

For many, the Storm tactic was to double-gear them. They would mortgage the home or whatever other asset they had to the maximum 80% the bank would allow, sink the money into indexed sharemarket funds and then margin-lend on top, up to a maximum 60–70%.

Some commentators have described it as insane. Now the lawyers and regulators are circling Storm and the banks, particularly the Commonwealth which, in many cases, provided the loan on the home and the margin loan on the indexed funds.

As the market crashed, so did the hopes of many of the investors. Industry insiders saw Storm's rote letter to clients on October 8, recommending they switch up to 100% of their indexed funds to cash, as a sign that the game was up.

There was no way out other than to sell down or risk losing the lot. And even now most investors are yet to appreciate there is no way of getting back into the market without stumping up hundreds of thousands of dollars of extra cash which, of course, most do not have. There are estimates Storm's clients in North Queensland alone have lost as much as $500 million.

How could it have come to this?

Emmanuel Cassimatis is the son of a Greek migrant who used to run a corner store on the Atherton Tablelands and a cafe in Townsville. Julie, his wife, is one of nine children whose father was a jockey and worked in the building trade. “Two things drove us: our parents' (work) ethics and our background to have a better future,'' Emmanuel Cassimatis told the Townsville Bulletin earlier this year.

However, the couple also always aimed high – and charged high – 7–8% up front, as well as trailing commissions and fees from fund managers. He talked of flying Learjets and not just striving for the stars but “going beyond”. They built a five-level $3.8 million mansion on Melton Hill, overlooking Townsville harbour, said to be designed around a $75,000 Waterford crystal chandelier, and opulent $5 million business premises in the city's central business district. Emmanuel started with the MLC group in Townsville in 1972, where he met Julie, and for many years he was the group's leading agent in Australia. Both formed their own financial planning firms and, when they merged the companies in 1991 it was the start of what is now Storm Financial.

The company grew quickly to become the dominant player in financial advice in the region and by about 2000 they were beginning to roll out plans to expand the business around Australia. Practices were acquired in other regional Queensland centres and in Brisbane, and by 2005 the group moved into Sydney and then to Melbourne. The company says it has 13,000 clients – with perhaps 10% of those in North Queensland – and $4.5 billion under advice, 38 financial advisers, 140 staff and 14 offices across Queensland, NSW and Victoria.

A competing financial planner in Townsville, who asked to remain anonymous, perhaps sums up best what lay behind Storm's success and its current turmoil. “We have dealt with many clients from Storm, both clients leaving us to go there and clients coming to us for advice after they had invested with them. In short, these clients had one common element: greed. Everyone wants to make fast money and when you put a sensible approach in front of them and they compare it to a Stormified approach, the greedy always want to be Stormified.''

Tony Raggatt is business editor of the Townsville Bulletin.