The failure of agribusiness MIS's to haunt financial planners

The failures of various agribusiness managed investment schemes have created problems for the planning industry.

Given global shortages, Australia’s outstanding track-record in agricultural production and the propensity of successive Governments to offer lucrative tax breaks, it is hardly surprising that local investors have felt comfortable with the notion of agribusiness managed investment schemes (MISs).

However, as the dust settles over the demise of companies such as Great Southern, FEA and Rewards Group, such investments have clearly developed a taint that will not quickly be erased from the minds of investors.

Sadly for the financial planning industry, the high-profile involvement of particular groups in spruiking some MIS investments has served to compound the damage created by the likes of Westpoint and Storm Financial.

In the minds of the public and some sections of the media, it does not matter that a high percentage of the investments directed towards agricultural MISs originated from recommendations made by accountants.

Nor does it seem to matter that very often the investments were based on tax-effectiveness rather than the rate of return. The bottom line is that the finger of blame is again being pointed at the planning industry.

And the problem for the planning industry is guilt by association. Distancing itself from negative perceptions is made difficult when the ugly truth is that some planning groups did, indeed, spruik particular MIS investments, and those investments paid commissions that were well above the norm.

This then needs to be coupled with the reality that many investors were directed towards such schemes on the basis of offsetting their tax exposures — a direct by-product of government policy.

Not unconnected to all of this is the role played by the ratings houses and the appropriateness or otherwise of their assessments, but as one ratings house spokesperson made clear to Money Management, agribusiness MIS investments are distinctly different to conventional managed funds and need to be treated as such.

The anecdotal evidence suggests that agribusiness MIS promoters have retreated from the market this year, with only a fraction of the money raised in 2007-08 being sought today.

However, the reality confronting MIS promoters and the entire financial services industry is that recent events and the failure of multiple schemes means the rules must change and the bar must be lifted.