Getting on the list

Agribusiness investment schemes have been gaining greater acceptance with financial planners in recent years.

Money Management spoke to a number of advisers and dealer groups nationally and found very few practices that did not have any products on their approved lists.

While some advisers and groups said they handled very little product, they still had one or two funds on the list.

Northwood Financial Services executive director Rod North says one of the reasons why some advisers were less keen on agribusiness products was compliance.

“A number of mainstream advisers, due to compliance issues, are putting agribusiness at the bottom of the list,” he says.

“Some accounting groups are still interested in the agribusiness sector and do a certain amount of business.”

North says the preference among advisers is to deal with companies that have a good reputation or are listed.

“Advisers will still look at projects with a strong pedigree,” he says.

“But some of the mainstream advisers are still attracted by the high inducements of agribusiness managers and this has caused disquiet among some advisers.”

Increased understanding

Great Southern Group general manager Cameron Rhodes says in the past few years there has been growing acceptance of agribusiness projects.

“Advisers understand them better now they have used a few,” he says.

“Agribusiness projects are more highly regarded and they are properly run.”

Rhodes says advisers look at the investment first and the tax second.

“I often talk to financial planners and accountants and they look at agribusiness investments the same as they would look at any other investment,” he says.

“For them it is the same as buying shares. You look at the sector and the management to see if it is a good investment.”

Great Southern has achieved incredible penetration into the adviser and accountant distribution network.

Banksia Partners director Ray Page says his practice uses Great Southern typically for clients who need a tax solution outcome.

“Agribusiness is definitely used for tax planning that will deliver an upside,” he says.

“We have done some olive groves, but most of our clients are in timber.

“We see Great Southern developing products that we can use in vertical integration of a client’s planning needs.”

Risk tolerance levels

Winchcombe Carson Financial Planning head of distribution Scott Monotti says Great Southern is on its approved list with other managers.

“We have a couple of managers on our approved list and some non-core projects for limited use by advisers,” he says.

“Core projects include managers such as Great Southern.”

Monotti says the small approved list is primarily due to the concerns he has about the agribusiness sector.

“I am worried about a lot of the products that are available, which is why we have a small selection,” he says.

“We see a lot of these products [as] the same as Westpoint — and look at what has happened there. We are fairly conservative with these types of products.”

Winchcombe uses its investment committee to research products and come up with recommendations for the approved list.

Only certain advisers who have familiarity with it can use the specialist non-core products.

AMP Financial Planning chief operating officer Neil Macdonald says the dealer group has a maximum of six agribusiness products on its approved list.

“There are strict rules on which advisers can use the products and only a maximum of up to 10 per cent of a client’s funds can be put into agribusiness,” he says.

“It is mainly timber schemes that are used, but we do have other crops.”

Macdonald says agribusiness is a small part of its adviser business.

“It is appropriate for some clients and provides a layer of diversification,” he says.

Consumer education

While adviser knowledge of agribusiness products is improving, Macdonald says many clients are unaware of what is available and how they can benefit from such investments.

“It is good for the adviser to be able to inform them of these products if they are suitable,” he says.

AMP was not the only major dealer group Money Management spoke to with low usage of agribusiness products. Macquarie Wealth Management national practice manager Doug Webber says his group is not a big user of the products.

“We have got a number of products on our approved list including Macquarie agribusiness products,” he says. “But advisers are not getting excited about them.”

The type of client that would use an agribusiness product would have a tax-driven need, he says.

“Our clients are more interested in the investment and the investment return.”

Low take-up of product seems to be prevalent among the smaller dealer groups Money Management spoke to, and most used the products for tax planning.

Tax benefits

Infocus Money Management managing director Darren Steinhardt says his group is not a huge user of agribusiness projects.

“We do about $10 million in agribusiness projects a year specifically for taxation,” he says.

“We do predominantly trees as they appear to be the most secure in the market.”

The dealer group has five agribusiness projects on its list, and a return from the investment is important, Steinhardt says.

It is a similar story at London Partners Victoria where managing director Steven Rowley says: “We have some agribusiness projects on our approved list as part of our alternative investments for tax planning purposes.

“The projects were more appropriate when the [superannuation] surcharge was in, but we still put two or three on the list each year.”

Another low user of agribusiness products is LBA Financial Services. General manager Bruce Birchall says only a couple of products are on its approved list. These products are recommended by AXA, as LBA uses its research services.

“We use agribusiness schemes very little as we are very conservative in our approach,” he says.

“We don’t have many advisers who use them.”

Agribusiness opposition

It has been estimated that 80 per cent of advisers use one or more agribusiness products during the financial year, but one South Australian practice is vehemently against them.

Hood Sweeney Securities director Matthew Rowe says the practice has no products on the approved list — and doesn’t want any.

“We haven’t seen a client yet that makes money out of them,” he says.

“We believe you should never get involved in anything with two or four legs unless you are a farmer.”

Rowe says the group is conservative by nature and cannot see where owning a vineyard fits into tax planning.

“The primary reason for investing in these schemes is the tax breaks and without those, why would you invest in these schemes?”

Rowe says the practice has a very simple test when it comes to looking at investing in schemes such as agribusinesses; “Would I put my mum and dad’s money into one of these schemes? No I wouldn’t”, he says with a smile.