A MACQUARIE Group operation that competed with the collapsed managed investment scheme spruikers Great Southern and Timbercorp is calling for reform of the battered industry.
Macquarie Agricultural Funds Management wants disclosure rules tightened and a crackdown on soft-dollar commissions (non-cash benefits) and other incentives given to financial advisers.
The agribusiness MIS arm of the financial conglomerate said MIS operators should be required to give regular "inventory" updates on how schemes are progressing, and should be made to disclose the performance of their previous schemes.
In its submission to a parliamentary inquiry examining the Great Southern and Timbercorp collapses, Macquarie said a review of soft-dollar commissions was warranted and tighter restrictions considered.
Timbercorp, in liquidation, and Great Southern, in receivership, collapsed within weeks of each other in April and May, plunging into uncertainty the investments of tens of thousands of people. Both operated by selling tax-effective investments based on agricultural schemes, including bluegum, olive, almond and cattle schemes.
The failures sparked various court actions, potential lawsuits and two parliamentary inquiries, including one by the joint committee on corporations and financial services which will hold a public hearing in Canberra today. The Australian Securities and Investments Commission is among those giving evidence at the hearing.
ASIC's submission says soft-dollar payments were often paid to so-called distributors and marketers of MIS products, payments which may have included entertainment, golf days, sporting events and dinners.
Victorians were the biggest investors in Great Southern and Timbercorp, ASIC's submission states, and most investors were retail investors who sunk less than $100,000 in the companies' products. It was common for investors to gear, or borrow, "their entire investment in agribusiness MIS", ASIC said.
ASIC's submission reveals the extent of complaints relating to disclosure documents by Great Southern and Timbercorp combined: 59 complaints in the financial years 2007 and 2008. The number ballooned to 708 complaints last financial year when the two companies fell into administration.
ASIC said it had conducted 67 "surveillances" on agribusiness MIS-related issues in the past three years, 16 of which were continuing.
One MIS player, Gunns, used its submission to argue against further regulation of the industry, claiming the Timbercorp and Great Southern collapses had more to do with an unfavourable Tax Office ruling, the global financial crisis and the "specific business models" of the failed companies than problems with the MIS model itself.
But the National Farmers Federation argued that the demise of the two companies confirmed fears that MIS would damage Australian agriculture's investment reputation.
The economics manager of the NFF, Charles McElhone, said the companies' collapses painted agriculture in an extremely poor light to urban investors.
Mr McElhone said the schemes' structures did not promote sound investment decisions and distorted land values and commodity markets.
Decisions to invest in the schemes were based on tax deductions, not long-term profitability, and thus favoured industries with high up-front expenses, with little regard to output returns.
"The MIS mechanism is also acting to mask price signals for farmers, leading to inefficient allocation of scarce resources," he said, particularly in relation to water prices and water access.
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