Financial advisers are facing an ethical dilemma as they buckle under immense pressure from agribusiness investment scheme managers with large marketing budgets, and this practice is damaging the industry.
This is according to Anissa Cavallo, the managing director of BDM Direct, who said the agribusiness investment industry has traditionally been dominated by large corporate players with big marketing budgets, which may not be putting the money where it should be to ensure investors are getting the best possible returns.
These managers promise no ongoing fees but they are overshadowing smaller players that may charge management fees but, in turn, have better business practices, she said.
Cavallo is optimistic that a government inquiry could result in an industry-wide move to ongoing fees in agribusiness projects, creating a better end product for investors.
She added that excessive spending on marketing to financial advisers presents the advisers with an ethical dilemma.
“It does [present a conflict of interest], but that’s the nature of any networking industry — you need to have that opportunity to socialise and get to know the people that you’re working with,” she said. However, she added that there is a line that can be crossed and competition between the bigger players has resulted in “something else”.
“Is money being thrown at you so you’ll write the business or are people just trying to honestly know you and your business better,” she questioned.
“The amount of money that they spend is virtually bribing advisers … Some of the bigger guys have been competing with each other and it has started this snowball effect whereby they have spent all the money marketing to financial advisers rather than actually growing trees, herding cattle, or putting the money where it should be.
“I don’t think any financial adviser’s clients care if they go out to lunch with a supplier, I really don’t. They do care when a financial adviser starts to be influenced by a large business on the basis of a marketing budget.”
She feels this type of practice has already damaged the industry but is optimistic that there will be change for the good as corporate collapses and the global financial crisis have put the spotlight on the need for increased regulation, better regulation and better business practice in the financial services industry.
“The industry is already under a lot of scrutiny as a result of Great Southern and Timbercorp,” she said.
Cavallo feels that perceived conflicts of interest are not the main issue, but rather that smaller players are being overlooked by financial advisers who are dazzled by the big spenders.
“If someone is throwing money at you and splurging, it’s easy to believe that business is more secure than other businesses because they’ve got so much money to spend on you. But that’s not the reality, it’s not true — in fact it often means that the money is not going where it should go.”
