I have been watching with interest the Storm Financial saga (and other similar cases). Inevitably in cases like this the attention is focused squarely on the operator as the doer of wrong and regulators and legislators take reactive action to try and prevent such things happening again. But what I want to focus on is the almost certain prospect that a Storm Financial case will occur again in the future. Why am I so convinced? Because the underlying fundamental investment strategy employed by Storm Financial was not illegal. The investment strategy was simply a leveraged play on the stock market taken too far and without proper and adequate investment controls. Right now I can buy stocks, I can borrow money to fund the purchase of those stocks, I can use my life savings to buy those stocks, I can take out a margin loan to buy those stocks, I can have too much exposure to those stocks, and so on.
As I have said before the only way to effectively minimise the chances of a Storm Financial happening again is to put more attention and resources into properly educating the workforce and our children about investing. The earlier the education process starts the better off we will all be. We have a compulsory superannuation system and so every worker has a vested interest in being better educated. The ability for one to self manage their super makes education even more important. But if people are unable to make informed decisions life savings and retirement incomes will continue to be lost or severely impaired. Not many people have the resources to recover from such losses, so government should work harder on proactive measures, rather than reactive regulatory and legal measures. It is too late then.
RIFM'S Blog 