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Professional Investment Services (PIS) has cut all agribusiness managed investment schemes (MISs) from its Approved Product List (APL) in response to structural concerns about the sector and unwillingness by product providers to cease offering high commissions to the group’s advisers.
The change to the APL is effective immediately and follows a review of the sector that began mid-last year following the collapses of Timbercorp and Great Southern.
PIS managing director Grahame Evans said the group had two sets of concerns: principally the financial uncertainty in the sector, evidenced by the withdrawal of funding for Forest Enterprises Australia (FEA), and an unwillingness by product providers to meet PIS’ request for capped commissions to advisers.
Evans recently called a meeting of the agribusiness MIS providers formerly supported by the group, including Gunns, Willmot Forests, Macquarie Agribusiness, Forest Enterprises Australia, TFS and AIL.
Evans requested the groups cut their high up-front commissions to advisers to ensure there was no real or perceived conflict of interest in the recommendation of the products to investors.
But the providers resisted, offering only to introduce a lower (+4 per cent) up-front commission with a trail, while leaving the existing, 8-10 per cent up-front commission structure in place.
“To me, sitting on the fence was unacceptable,” Evans said.
“If a product was to fall over, the focus would still be on whether it was written for the commission, and that needs to be taken completely out of the argument.”
The group was a strong supporter of agribusiness MISs in the past. At the time of Great Southern’s collapse, PIS was its second largest single investor.
The group commenced its annual conference in Honolulu, Hawaii, today. The sessions set aside for speakers from agribusiness MIS providers have been scrapped and sponsorship money returned. Some agribusiness company representatives have still attended the conference. The group’s statement comes in the lead up to the end of the financial year, traditionally a boom time for agribusiness investments.
In communicating the position to advisers last week, PIS general manager, product and alliances, Paul Forbes said the failures of Timbercorp and Great Southern, while more to do with the management of those companies rather than the sector, had nonetheless “highlighted some structural weaknesses in the project design and certainly the protections in place for clients and their investments”.
In addition, the recent withdrawal of the traditional funders of these projects had created “a very unstable environment for investors and increased uncertainty on future returns”.
Evans believes the agribusiness industry in the long term does deserve investor support, and that some products remain appropriate from both a portfolio diversification and tax planning perspective. Where advisers or accountants require agribusiness MISs as an investment strategy, they will need to refer the client directly to the company.
The group will review the position in 12 months.
