MIS sector failures out of planner’s hands
A government department, major bank and agribusiness scheme promoter have challenged the narrative that financial planners were complicit in the collapse of the forestry and agribusiness managed investment scheme (MIS) sector.
In a series of submissions to the ongoing Senate Economics References Committee inquiry into the structure and development of forestry managed investment schemes they stated that while planners may have acted inappropriately in receiving large sales commissions they were not at fault for the collapse of the sector and the loss of client funds.
In its submission ANZ stated that schemes failed due to external events including a drought, an adverse assessments from the Australian Tax Office which was later overturned and the global financial crisis (GFC) which affected investment markets and vehicles including forestry and agribusiness MIS.
This assessment was shared by the Federal Government’s Department of Agriculture which also referenced the GFC and the structural weaknesses in some of the schemes.
“Some forestry MIS companies had a business model focussed on highly leveraged land acquisitions and the reduction in credit availability following the Global Financial Crisis contributed to their collapse. The Global Financial Crisis also led to reduced demand for MIS products. In addition, some forestry MIS companies that were under financial pressure found their plantation assets could not be realised as trees were immature and not yet suitable for harvest.”
Scheme operator AgriWealth Capital chief executive Wayne Jones stated in his submission that the collapses of schemes from 2007 onwards “arose because of the mismanagement by those entrusted with the responsibility to properly manage the respective plantations”.
“There is nothing wrong with the plantations – only those who could not carry out their stewardship in a commercially responsible manner,” Jones stated.
However Chartered Accountants Australia and New Zealand (CA ANZ) argued in its submission that the commissions and tied representative licensing model used at the time by MIS promoters were part of the problem in the sector.
“The combination of financial products being sold that had a high upfront commission structure, provided investors potentially with a tax deduction and a licensing framework that allowed advisers to provide advice on a single product type (agriculture), led to the eventual distortions,” CA ANZ Head of Leadership & Advocacy Rob Ward stated.
“The remuneration models that existed within the agribusiness industry contributed significantly to the distortions that developed within rural and regional Australia. The remuneration models (and the tied representatives) contributed to the enormous flows of capital available to the agribusiness firms.”
AUTHOR
Jason Spits
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