Anne Lampe

ASIC’s problem, as Paul Barry indicated in his excellent article on Storm Financial (‘In the Eye of the Storm’, February 2011), is that the regulator is far too compliant and process-driven at the top, rather than being proactive and bold enough to get out there in the financial marketplace, look at what advisory firms are up to, and take action to nip in the bud schemes where rogue advisers play dangerous games with investors’ hard-earned retirement savings. ASIC should shut rogue advisers down and take away their licence to give advice before – and not after – they inflict catastrophic damage on investors.

Having worked at ASIC a few years ago, I can attest that ASIC senior executives go to a lot of meetings at which there is a lot of talk, debate and analysis, but from which the outcome is too little action. The same issues came up at the next meeting, and the next. I couldn’t help thinking that it was felt that if a decision was made, it might blow up in ASIC’s face, but if no decision was made, there’s nothing to attract criticism.  

ASIC waits until a raft of written complaints (verbal complaints don’t cut it) are received about a dodgy investment scheme. By that time, the complaints are from angry investors who have been shaken down and lost their money. It is too late.

ASIC has powerful audit powers it can tap to visit a financial adviser and review client files to see whether the “know your client” legal requirement before providing financial advice is being adhered to. Had ASIC looked at even ten Storm client files it would have been immediately obvious that this requirement was not met, that all investors were in a one-size-fits-all scheme, that retired people on low incomes were heavily double-leveraged and saddled with a debt they could not possibly service on their income. It would even have picked up that loan applications were bodgied up by someone other than the investors, who signed blank documents.

Several non-Storm Financial advisers and a lawyer contacted ASIC in 2006 and 2007 warning about Storm’s dangerous practices. ASIC did nothing. Had it taken a look at Storm then, ASIC could have demanded a change in advisory practices or even shut its operations down, saving thousands of investors from involvement in the debacle.

Storm’s principals would no doubt have challenged such action in court. That would have been a good outcome, as it would mean its dodgy modus operandi would have been exposed to the public early on and thousands of investors would not now be in a parlous state. Even if ASIC had lost its court action, the publicity would have acted as a warning to other investors to stay away.

But instead of taking action, ASIC sat on its hands, allowing investors to think that Storm, being an ASIC-licenced adviser, was trustworthy. ASIC took no action until last December and investors must be prepared to wait for another two or three years for the matter to play out in courts. In the meantime, elderly victims are running out of time, struggling to live on old-age pensions, their houses in hock, big debts hanging over them and many fading into dementia and death before seeing any hope of compensation and justice.

Anne Lampe

Birchgrove, NSW