FPA issues warning on Managed Investment Trusts

7 March 2018

The Financial Planning Association (FPA) has cited the “massive consumer losses” associated with agricultural and forestry managed investment schemes (MIS) in warning a Parliamentary Committee about the dangers of managed investment trusts (MITs) in the context of affordable housing legislation.

What is more, the FPA has told the Parliamentary Committee that consumers considering the use of MITs should be urged to obtain personal financial advice to ensure such an approach is appropriate to their circumstances.

In a submission to the Senate Standing Committee on Economics review of legislation around Budget measures aimed at improving housing affordability, the FPA has urged a strong focus on consumer protections with respect to the use of managed investment trusts (MITs).

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It said that while the FPA supported the policy intention of increasing the supply of affordable housing, it questioned whether the right balance had been achieved between investor incentives and improving the availability of affordable housing.

The FPA said MITs were regulated financial products under the Corporations Act, usually with multiple investments held at any one time and, as such, could be complex financial products.

“The massive consumer losses associated with Forestry MISs and agribusiness MISs highlights the need for consideration of clear consumer protections for those considering investing in a MIT, particularly for consumers investing in such structures without financial advice,” the FPA submission said.

It said that the FPA was concerned that neither the explanatory material around the legislation nor the bills themselves highlighted the potential investment risks entailed in MITs, or provided a recommendation that consumers should seek personal financial advice to ensure an MIT was an appropriate investment for the individual’s circumstances.

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What the FPA and the general public aren't aware of is, even with ATO product rulings, not everyone that was put into MIT's was suitable to be in one.
That doesn't necessarily mean that they weren't a good long term primary investment for some,... but certainly not everyone.
The problem stems from the fact that Banks had lent large sums of money to the promoters of these MIT's, then wanted their dough back immediately after the GFC. Some of the management of some of these MIT's have a lot to answer for.
Finally there were some accountants and financial advisers who saw this as a great opportunity to make a quick fast buck without considering the clients circumstances or the potential failures. Again this does not mean all accountants or all financial planners were driven by large commissions at the expense of their clients.
For some the the immediate tax deduction and the long term return on the investment (albeit between 5.0% p.a and 9.0% p.a.) depending on the project over an 11 year period was a reasonable outcome.
Just remember for those who have great insight after the event, some of those MIT's were listed in the top 200 on the ASX.
Great Southern for instance in about 2003 made a profit of $200m and made a distribution (dividend) payment of I think $120m to shareholders.

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