Agribusiness immature, desperate for reform
The agribusinessindustry has some serious hurdles to overcome if it is to become part of the mainstream of investments recommended by financial advisers in Australia.
That was the message sent to agribusiness promoters at the Resnik Communications Agribusiness Forum held in Sydney last week.
Fiduciary managing director Graham Rich told the forum the agribusiness industry’s biggest hurdle will be altering the perception that it is an immature branch of the investment industry.
Rich, the former managing director of Morningstar, says financial advisers see agribusiness products as either too risky or too unknown, and not as part of a mainstream equities portfolio.
The problem, he says, is in the products’ marketing.
Rich says agribusiness is yet to establish tangible images in the investment community, and importantly, the marketing of agribusiness products fails to point out the benefits.
“My perception of this industry is that the returns that are presented seem unrealistic. Risks are therefore seen as extremely high, which gives the industry the hallmarks of an immature industry,” Rich says.
Rich says Fiduciary’s research showed investors begin to get suspicious about prospectuses projecting returns above 15 per cent, despite there being a very good chance that an agribusiness venture could make that figure.
According to Rich, the agribusiness industry could overcome negative perceptions if it began promoting itself to financial advisers as a credible sub-sector of Australian equities rather than as its own separate asset class.
However, this is easier said than done.
Van Eyk Capital managing director David Marshall, also speaking at the conference, says if the agribusiness industry would like to promote itself as a mainstream asset class to planners and investors, it would have to firstly start acting like one.
He says the sector must overcome serious structural flaws, related to the key areas of fees and commissions, before it could legitimately position itself alongside other mainstream asset classes.
Marshall says the high cost of establishing many agribusiness schemes, as well as high entry and other ongoing fees associated with agribusiness schemes, are not credible, especially when stacked up against other asset classes.
He says many agribusiness schemes have entry fees ranging from 20 to 55 per cent and ongoing fees of up to 45 per cent. This compares unfavourably to Australian equities, listed property and venture capital, which have an average entry fee of three per cent and ongoing fees of 1.5 to three per cent.
Marshall also says the commissions paid to planners who sell agribusiness schemes, which range from six to 20 per cent, are out of kilter with commissions paid for sales in other asset classes, which average around three per cent.
“If agribusiness wants to be treated as a mainstream asset class, then these figures must be comparable with other asset classes,” Marshall says.
“The tragedy is that this industry can sell products and profit consistently and repeatedly. However, current practices are unsustainable.”
Recommended for you
Over half of wealth management clients in Asia-Pacific say they are looking for more advice in investment and financial planning services, according to EY, and may switch or add new providers to achieve this.
As artificial intelligence continues to reshape how the advice industry operates, Adviser Ratings unpacks which areas advisers are using the technology to improve the client experience.
Insignia Financial has appointed the former APAC head of a global asset manager to its board.
Financial advisers have been warned against advising clients to withdraw superannuation for medical or dental treatments as a new report highlights the long-term effect on balances at retirement.
