Colonial Geared Investments' systems were flawed: former Storm Financial executive
The Commonwealth Bank of Australia’s Colonial Geared Investments arm did not have the human or technological resources to handle the share market meltdown and the subsequent sell-down of Storm Financial clients’ share portfolios, a parliamentary inquiry has heard.
A former executive of failed financial planning group Storm Financial has used his submission to the parliamentary inquiry to point to the inadequacies of the systems and staff of Colonial Geared Investments (CGI) in managing the margin loans and investments of Storm Financial clients.
Ron Jelich — who sold his financial planning business to Storm and later became a key executive within the group — believes software used by CGI, an investment arm of the Commonwealth Bank of Australia (CBA), to monitor the margin loans of clients of Storm Financial was faulty.
Jelich said he believes the bank “did not have the human or technological resources to handle the meltdown in the frenetic period from early October to December [2008]”.
Jelich states that a “forensic examination of the CGI simulator” has shown that “some of the algorithms embedded in the CGI computer simulator software were flawed and thus gave false readings when under stress”.
“The huge volumes of transactions being conducted at the time made it impossible to track individual clients’ portfolios with any accuracy,” Jelich’s submission states.
“This made it impossible for investors and advisers to accurately monitor their fluctuating portfolios at this crucial time.”
Clients of Storm Financial had “no way of accurately tracking their portfolios and were given no forewarning of the bank’s decision to sell them out”, Jelich said. Neither were they given any opportunity to meet their commitments and to stay in the market if they so chose.
In his submission, Jelich states “CGI staff resources were grossly inadequate to discharge their duties in a ‘competent and efficient’ manner in their dealings with Storm Financial and its clients”.
Jelich’s submission said, “prior to the meltdown, the monitoring of all [CGI] margin loans with Storm [were] handled by one staff member sitting at a computer screen in Sydney, to the best of my knowledge”.
According to Jelich, a report relating to flaws in the CGI simulator is the subject of a separate submission to the parliamentary inquiry.
Jelich also states in his submission that in March 2008, “a system was developed by the CBA and linked to Storm’s computer systems to allow the bank to conduct remote valuations of all assets of joint clients of Storm and the CBA”.
“If the valuations showed that the clients had sufficient equity, a recommendation would be made by Storm for them to borrow more money,” Jelich said.
Recommended for you
The top five licensees are demonstrating a “strong recovery” from losses in the first half of the year, and the gap is narrowing between their respective adviser numbers.
With many advisers preparing to retire or sell up, business advisory firm Business Health believes advisers need to take a proactive approach to informing their clients of succession plans.
Retirement commentators have flagged that almost a third of Australians over 50 are unprepared for the longevity of retirement and are falling behind APAC peers in their preparations and advice engagement.
As private markets continue to garner investor interest, Netwealth’s series of private market reports have revealed how much advisers and wealth managers are allocating, as well as a growing attraction to evergreen funds.
