The Australian Agribusiness Group (AAG) has attacked the level of commissions charged for agribusiness products claiming they are too high and effectively stifling these projects from becoming a mainstream asset class.
Promoters of these types of investments are offering higher commissions to financial advisers as an incentive for them to recommend agribusiness products to their clients.
“We accept that the commissions might be higher up-front to justify the planners maintaining their knowledge of these projects over the 10 to 20 year lifetime of these investments. That’s why we think it is fair that they are higher, but we just think they are little bit too high at the moment,” AAG executive manager Tim Lee said.
Commissions associated with these products are currently between 10 per cent and 15 per cent, with the majority being passed on to the investor through the initial cost of the investment.
Lee feels the situation has arisen because of competitive pressures in the market.
“It’s purely a factor of simple economics. Some groups are paying higher and other groups have to pay the equivalent higher rates to be able to compete in certain financial planning groups, so when one group starts paying high commissions it drives the market up,” Lee explained.
Mercer Investment Consulting principal Rashmi Mehrotra feels the high commissions are counterproductive as a tool to get more investors involved in these projects. While investors place their funds in these projects for a variety of reasons, such as tax advantages, she believes the high commissions will impact on the most important of these driving factors, the net returns.
“As much as focusing on one thing is not a good idea, in this particular instance that one thing does make a material impact on the net returns, and that is after all the only reason why somebody should invest, to get returns,” she said.
Lee said a reduction in commission would be beneficial for everyone involved in agribusiness but can’t see it happening in the immediate future.
“We would like it to change. I think it would be good for all around, but I can’t see it changing in the short-term. I think the pressure has to come from the dealer groups … and I think it has to come from some of the compliance people within the dealer groups saying we’ll accept only a certain level of commission, but I don’t really see that happening in the short-term,” he said.
