Storm Financial letter 7

Dear Michael, the Storm fiasco raises serious concerns about the regulator, its relationship with budding co-regulators like the FPA and the way in which the FPA goes about enforcing its own professional standards.
 
There are Rules of Professional Conduct that Storm would have at least annually assured FPA it was adhering to.
 
e.g. Rule 110 - "In preparing oral or written recommendations to clients, a member [i.e. STORM] shall develop a suitable financial strategy or plan for the client based on the relevant information collected and analysed.''
 
The STORM modus operandi appears to have been quite simple: identify someone with home equity but few other assets (not a very tough assignment) and convince them they need to gear in order to achieve a decent post-retirement income stream (again, not hard if you know how to create a power point presentation with colourful graphics).
 
I have no doubt the advice documents will contain full disclosure of fees, commissions and other benefits that STORM obtained when it sold the dream to each client.
 
But I strongly doubt the STORM documents will sustain an argument that the double gearing strategy was a suitable path for most of them.  No doubt FPA's pro bono panellists will form this conclusion as well.
 
BUT, given the history of STORM (poorly perceived by industry peers, a well-known, aggressive market player and a high priced one to boot) how come the FPA did not perform any sort of verification audit (to my knowledge) to see for itself what sort of house of cards was being built using its brand?
 
Like STORM, the FPA panellists will probably end up using a one-size fits all approach to ex-STORM clients themselves.  Something like "Sorry, you've lost the lot and there's nothing we can do about it.''
 
A pity they are only now finding the time and energy to do anything about one of their Principal members. The public deserves better than this.
 
I suspect ASIC has adopted a quasi-co-regulatory position where FPA members are involved, if only because they have so many other AFSLs to keep an eye on and (apparently) so few resources.