Queensland’s Storm Financial Group under pressure

Townsville-based financial advisory group Storm Financial is in crisis, after Colonial First State terminated its four Storm-branded index funds and began hitting Storm clients with margin calls.

Townsville-based financial advisory group Storm Financial is in crisis, after Colonial First State terminated its four Storm-branded index funds and began hitting Storm clients with margin calls.

Storm, which claims to have 13,000 clients and $4.5 billion in funds under advice, has grown quickly in the last five years and had planned a $500 million sharemarket float in 2007.

While the float was cancelled due to a lack of interest from institutional investors, Brisbane’s Sunday Mail newspaper valued the company’s founders Emmanuel and Julie Cassimatis at $450 million earlier this year.

But the financial crisis appears to have hurt the business badly.

Under the Storm model, clients borrowed heavily to invest in Storm-branded index funds that were managed by Colonial and Challenger.

But Colonial said yesterday that it had terminated its Storm funds due to “the large volumes of withdrawals and the poor performance of sharemarkets”.

According to reports in the Townsville Bulletin, at least two local law firms are considering class actions against Storm, claiming clients have been given inappropriate financial advice to suit their circumstances.

Storm representatives did not return calls from SmartCompany.

But in a statement to the Townsville Bulletin, Emmanuel Cassimatis denied claims clients had been given inappropriate advice and said Storm was examining legal action against Commonwealth Bank, which owns Colonial First State.

The paper estimates losses of Townsville-based clients could run to $500 million.

In October, Emmanuel Cassimatis wrote to clients advising them to switch 100% of their portfolios into cash.

“The essence of the recommendation is to avoid a situation where one must dispose of assets or sell down assets to reduce debt,” he wrote.

But this advice may have come too late for many clients, who now face huge losses.

Storm has grown rapidly in the last few years by acquiring financial planning firms up and down the east coast and then bringing these firms’ clients into the highly-geared Storm model.

The company is also famous for its free-spending approach toward staff and client relations. Earlier this year the company hosted about 600 of its clients on a group holiday at a Sun City resort in South Africa and last year it took 400 clients on a Mediterranean trip with Emmanuel and Julie Cassimatis.