‘Horrifying’ advice played role in MIS collapses: Senate

Linda Santacruz / March 15, 2016 / 0 Comments

A Senate committee has published the final report on its inquiry into forestry managed investment schemes (MISs), which states that "horrifying deficiencies" in financial advice had played a role in instances where investors lost money.

According to the report from the Senate Economics References Committee, two of Australia's largest agribusiness managed investment schemes failed in 2009 — Timbercorp and Great Southern. These were followed by other major scheme collapses, including Willmott Forests Ltd and Gunns Plantation Ltd.

The collapses resulted in many retail investors losing their money as well as being left with the loans they took out to fund the investments. The report states that financial advisers who recommended the schemes to their clients form part of the several causes which led to the "financial failure".

"The committee has established that there were horrifying deficiencies in the way some advisers adhered to the basic requirements to know their client, the product they were recommending and to have a reasonable basis for their advice," the report states.

"Evidence indicates that, in some cases, advisers disregarded their clients' risk profiles; withheld important information, particularly about the speculative nature of the venture; failed to provide critical documents; wilfully downplayed risks; and exaggerated the promised returns.

"Some financial advisers or accountants put their own interests above those of their clients and gave unsound advice, which resulted in their clients sustaining substantial financial losses. In case after case presented to the committee, it was clear that some advisers were more intent on selling a product because of the attractive commissions they could earn rather than providing their clients with appropriate advice."

Further, the report includes the FPA's views that that the advice mentioned by submitters to the inquiry had ignored the fundamentals of good advice.

"Those financial planners or accountants who recommended that their clients invest a majority or 100 per cent of their assets into a forestry management investment scheme, particularly using leverage, would not be considered appropriate," the FPA said.

The committee also made recommendations as a result of its findings, such as having ASIC be "vigilant" in monitoring the operation of the FOFA legislation and to advise government on potential weaknesses that would allow any form of incentive payments to creep back into the financial advice sector.

In addition, the committee recommends that the Australian government consult with the industry on ways to "improve the presentation of a product's risks in its respective PDS".

"The intention would be to strengthen the requirements governing the contents and presentation of information, particularly on risks associated with the product," the report states. 

"This measure should not result in adding to the material in these documents. Indeed, it should work to further streamline the contents but at the same time focus on information that an investor requires to make an informed decision with particular attention given to risk."

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On 2016-03-17T05:02:16 Another Mad Planner said

[quote name="Jimmy Neutron"]
How good indeed. I note he&#039s still operating. I don&#039t know how some people look in the mirror each day.[/quote]

Then I am aware of several small accountnats who were AR&#039s that were banned for 3 and 5 years as a couple of their clients complained to ASIC directly.

It is sickening that the above has walked free.

‘Horrifying’ advice played role in MIS collapses: Senate

On 2016-03-16T05:27:30 Jimmy Neutron said

When working as a BDM for one of the fundies, I called on an accountant out in the Hills district, who was also an auth rep. In his foyer he had a large framed picture of himself in various poses at a Wilmott Forests visit. The only questions he had for me was what comms would he get from our platform. When I said none, you set the fee and get your client to agree to it, he wasn&#039t interested.

He then proceeded to tell me that he was big provider for Willmott, in his first year he put in $10M of client money with them and they sent him a cheque for $1M. "How good is that!!" he exclaimed.

How good indeed. I note he&#039s still operating. I don&#039t know how some people look in the mirror each day.

‘Horrifying’ advice played role in MIS collapses: Senate

On 2016-03-16T05:11:48 RG said

Funny the root cause of most problems has not even been raised here being the Govts desire to test the tax deductability of the MIS industry through the court. This one fact left a huge cloud over the product manufacturers ability to put product to the market & hence their cashflow dried up very quickly. Dont forget these companies where large public interests and had years of solid track record but due to the MIS nature took many years to mature & repay & we know this did not occur for many. Lets applaud the ones that did survive (somehow they seemed to make $$ out if it??) its certainly a pity most have now sold into foreign hands who see the long term benefits of our rural industry & invested and that idealogy has never changed in my view.

‘Horrifying’ advice played role in MIS collapses: Senate

On 2016-03-16T03:52:21 Scott said

Some quotes from Wikipedia on The Great Southern Group who were a major player in this field with Timbercorp:

Reports from 2000 and 2004 were reported to have found the schemes performed relatively poorly, in one case relating an analysis "of schemes offered to the public in 200203 [that] found that less than 10 per cent were sufficiently sound investments to warrant their recommendation".

The Great Southern Group relied significantly on financial planners and accountants recommending their MIS products to investors. The company was paying commissions of ten percent high by industry standards and similar to those paid by other failed investment businesses. Some accountants, with Great Southern&#039s support, were recommending the agribusiness investment schemes, though they did not have a financial services licence one report suggested over half of Great Southern&#039s MIS sales were coming through accountants, often tax specialists from small practices.
These practices had been questioned for several years by the corporate regulator ASIC and some experts were critical of the lack of knowledge and expertise of the investment advisers recommending agroforestry MIS schemes.

To summarise - bad products (with this being known for a number of years by ASIC who did nothing) paying over the top commissions being sold by accountants (and some financial planners) without the required license or knowledge of the product and the issue is an inadequate risk profile?

ASIC and unlicensed accountants have definitely gotten off lightly in my view.

‘Horrifying’ advice played role in MIS collapses: Senate

On 2016-03-15T09:33:29 Joe said

Interesting that this rears its head to tarnish financial advisers yet again, (after how many years now??) at a time when an election is potentially looming, the LIF is coming under fire, the FSC is potentially coming under more scrutiny due to the fiasco with Comminsure, and also ISA is finally starting to cop flak due to their negligent group life decisions...

When I had small children too young to be sharp thinkers, I would distract their attention off one thing by saying something like "Look at that dog over there!". Obviously Labour and the ISA are doing the same thing with their slavering obedient senate committee dog... appropriate as they are probably all a pack of uneducated mongrels with less education than any group in our profession as well

‘Horrifying’ advice played role in MIS collapses: Senate

On 2016-03-15T08:28:27 interesting said

Lets see if the cry baby sooks that visited the senators who now have loans and a blown up asset will repay the tax deductions that they claimed upfront.

Also you can sue the lawyers who told you to stop paying the interest that you were claiming year after years as a deduction.... its called RISK for a reason.

‘Horrifying’ advice played role in MIS collapses: Senate

On 2016-03-15T08:19:58 Veteran Adviser said

Hmmm.. you didn&#039t mention that the Senate Committee also pointed out the banks involved have a duty of care to the clients who borrowed funds to invest in the schemes.

About the only thing that can be done at this late stage of the game is to shine a light on what the ANZ Bank, Bendigo Bank, etc are doing right now - which is to PROFIT hugely from the situation instead of simply operating to recover monies owed.

‘Horrifying’ advice played role in MIS collapses: Senate

On 2016-03-15T06:17:32 AJ Dann said

Wow! Did I see accountant mentioned in this article or do I need new glasses!! When I was a bank employed FP(16 years ago) I saw numerous people who were so hell bent on investing in MIS on advice of their accountant. Bank managers would send them to us for another opinion and I had many a prospective investor walk out of my office in disgust that I didn&#039t share their enthusiasm for what was a flawed investment. I come from a farming area where MIS - Blue gums(Casterton/Dergholm) had been paying 3 times the price for land than the highest price ever achieved in the history of the area. They were planting trees in places that wouldn&#039t grow a decent Yakka bush yet even when armed with personal experience and knowledge of what was going on I couldn&#039t sway people. The prospect of lower tax was like free money and what would i know. To all those clients that I saw 16 years ago who are now complaining that it failed and poor me I have no sympathy.

‘Horrifying’ advice played role in MIS collapses: Senate

On 2016-03-15T06:06:34 What do you expect said

How were the Accountants let off the hook. Those days the waiting rooms were full of Forestry PDS.
Why would those have been found in the accountants offices, only because Accountants were copping a huge upfront commission for referring commission for Referrals. I believe it to have been 10-20% of funds deposited. Clients always do as their Accountant says.

‘Horrifying’ advice played role in MIS collapses: Senate

On 2016-03-15T05:06:24 RT said

If you create an opportunity for someone to make more money, and even worse more money for little work then ALWAYS someone will take advantage of it. So let&#039s accept that there were greedy advisers who may have hidden behind their "excellence in understanding products, markets and tax opportunities" BUT let&#039s also not let the other guilty off:

1/ Product manufacturers who one has to fairly assume at worst hid, and at best underplayed, the inherent risks. Most likely inefficiently managed the investments. Put such on unacceptable commission rate

2/ The research teams and compliance teams who approved the products for sale by their money makers, the advisers. A massive massive onus must sit with them. These people hold themselves out as the great brains and repositories or good if they either directly or indirectly allowed their advisers to sell these products they are as guilty as any adviser.

3/ And now the poor old client who had enough personal greed that they ignored the adage that if it looks too good to be true it probably is - the client must take some blame. Many advisers SOLD ( as opposed to advised ) to this weakness in clients. And lets not forget that most clients don&#039t actually know what questions to ask no matter how clever they are in their dedicated areas of expertise e.g. the number of very smart doctors who lost $,000 from these schemes.

Its no wonder the industry has a bad name. But let&#039s start giving the adviser as little bit of wriggle room and conduct far more critical investigation into product manufacturers and licensees.

‘Horrifying’ advice played role in MIS collapses: Senate

On 2016-03-15T04:11:21 Steve said

Funny isn&#039t it, all of these accountants had degrees, all of the planners were educated and met the FPA criteria but alas didn&#039t help one bit.
What was lacking was integrity, ethics, morals and experience.
None of these can be gained from a course or a degree.
What even more ridiculous is some of these ex tree plantation people are running financial planning companies or working for them today. One of them is a state manager of a company that a recent four corners show tore apart. This industry needs a giant broom swept through it and these ex tree plantation peddlers need to go. Something further study won&#039t help with at all just like it won&#039t help with the next scandal that&#039s coming......FEE FOR SERVICE. Wait for this bombshell to explode and destroy any remaining credibility left.

‘Horrifying’ advice played role in MIS collapses: Senate

On 2016-03-15T03:58:16 intrigued said

Who was sitting on the senate committee?
We know that the collapse was caused by the GFC when lending ceased but Timbercorp, FEA etc failed to advise on the debt to equity of their assets while continually marketing the sustainability of their products. FEA had liquidity but funds were frozen by the CBA. Accountants were primary distributors of such tax saving vehicles. Non of the principals of the Agri Funds were fined for misrepresentation and we all lost money in what have become merely Ponzi schemes

‘Horrifying’ advice played role in MIS collapses: Senate

On 2016-03-15T03:30:44 Adam P said

Having never flogged some poor client one of these MIS rubbish products as I always believed they were the rubbish they all turned out to be.
And yes plenty of Adviser and Accountants should be blamed for flogging them.
But forgive my ignorance, didn&#039t the government develop this concept and thus allow these rubbish MIS products ?

‘Horrifying’ advice played role in MIS collapses: Senate

On 2016-03-15T03:28:47 Mr T said

Funny how product manufacturer is never to blame...

‘Horrifying’ advice played role in MIS collapses: Senate

On 2016-03-15T03:18:52 Ross said

No doubt there were advisers selling to their pocket with these schemes but from my experience these products were sold by ACCOUNTANTS and the ones I saw the commission was up to 10% !!!

‘Horrifying’ advice played role in MIS collapses: Senate