Margin lenders move in to clean up

Some margin lenders involved with Storm Financial have been trying to engage its clients through a mail campaign.

Colonial First State sent letters to Storm clients in January advising them to find a new financial planner.

Money Management understands Macquarie and St George sent similar letters.

Money Management has obtained copies of letters from Colonial's head of geared investments, John Clothier, to Storm clients that said the lender could "no longer receive instructions from your Storm adviser".

The letter said clients had two options: appoint a new financial adviser to advise on the margin loan or personally manage and maintain the loan. The letter then recommended the clients choose the first option.

"Due to the nature of the product and the current position of [the client's] facility, we recommend that [the client] consider the first option and appoint a new financial adviser to [their] Colonial Margin Loan," it said.

A second letter to Storm clients gave the option of breaking the fixed loan on their margin loan facility and leaving only the variable loan account. Clients also had a Colonial Accelerator Cash Account that accrued credit interest payable to the margin loan client. The letter, again from Clothier, said clients could choose to do nothing, which would see debt interest accrue on the loan daily.

Alternatively, the client could "break the fixed loan and leave only the variable loan account", the Colonial letter said.

"Depending on [the client's] situation, [they] may be eligible to receive a refund of prepaid interest.

"[The client] will also be liable for any break costs which may exceed the interest refundable."

The letter stated any "residual balance would continue to accrue debt interest at the prevailing viable rate of interest".

The Commonwealth Bank confirmed it is proposing to charge up to 50 per cent or more of the pre-paid interest as a break cost.

Money Management understands Colonial is proposing to charge up to 50 per cent of the pre-paid interest as a break cost. It is understood that many Storm clients pre-paid their interest until June this year to claim tax deductions, and the interest rates on these loans were fixed.

When contacted by Money Management, a spokeswoman from Macquarie said it "was not aware of any letter being sent to Storm clients".

A spokesman from the Commonwealth Bank said he didn't see the letters as an attempt to poach Storm clients.

"We don't see these letters as predatory as they were just offering good advice to the customer," he said.

St George was contacted by Money Management, but didn't respond before the publication's deadline.