Macquarie Agricultural Funds Management (MAFM) has called for closer scrutiny of the ‘soft dollar’ payments made by agribusiness managed investment scheme promoters to supporters of such products.
A submission by the group to a parliamentary inquiry into managed investment schemes states that while much attention has been given to the commissions paid to promoters of this sector, soft dollar payments must also be scrutinised.
Macquarie’s submission argued that while many Product Disclosure Statements disclose the payment of soft-dollar benefits, “there is not the same degree of transparency as compared to commissions, in respect to the quantum of these payments (in either dollar terms or as a percentage of the application fee)”.
The onus is therefore on the advisers who receive these payments to adequately disclose to clients the level of both commissions and soft dollar benefits received.
Macquarie believes that “due and proper consideration” must be given to the level of soft dollar benefits being paid as well as other “practices engaged in by providers in providing other financial incentives to supporters of their products”.
The submission said MAFM believes commission structures and the way commissions are disclosed in this sector should be reformed. The Macquarie submission said that while total commissions paid to advisers over the life of a managed investment scheme project may not be higher than those generally paid for other investment projects, “the industry practice of high upfront commissions may lead to a conflict of interest for advisers that may not be adequately managed by disclosure alone”.
The group believes the commission structures for agribusiness managed investment schemes should be “amended to establish a maximum limit to the overall level of commissions payable to advisers”, including soft dollar payments.
Macquarie believes agribusiness managed investment scheme providers should be required to report annually to the regulator the overall level of commissions and financial incentives paid in the name of increasing managed investment scheme sales.
The group also presented a potential alternative structure: commissions that are aligned to the performance of the project and the returns to the investors.
In regards to the structure of agribusiness managed investment schemes, Macquarie believes the collapses of Timbercorp and Great Southern have “highlighted that a sole or dominant reliance” on agribusiness managed investment scheme sales to fund operational requirements and profitability has the potential to lead to financial difficulty.
MAFM believes agribusiness providers should be required to “annually certify to the regulator that they have the financial capacity to support the financial obligations created by each agribusiness managed investment scheme”.
Other recommendations in the submission include the provision of land rights to agribusiness managed investment scheme investors for the life of the project and a disclosure by product providers of past performance results with respect to previous schemes.
