Sent: 08-09-2009 09:09:01
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Agri Scheme Review
Much has been made over the last week or so about the Parliamentary Joint Committee on Corporations and Financial Services (PJCCFS) review into financial products and services.
Of great interest is the failure of the Storm Financial business and associated margin lending practices and the public hearings that have been conducted throughout Queensland last week. The hansard for these hearings is yet to be released.
In March this year I wrote in my DIY Super column for The Australian that, "The recent Storm Financial saga shows that some investors or some organization(s) failed to act with sufficient haste as investors' total investments got near to margin call levels. Because margin loans have a recourse feature many investors have lost much more than their original capital as the market value of the investments sank below the value of the margin loan before it was closed out."
Thus far the evidence presented seems to back-up my comments.
What seems to have escaped under the radar of interest is the PJCCFS's inquiry into Agri Managed Investment Schemes. The report for this inquiry was tabled late last night in the House of Reps and is now available on the Parliament House website.
The committee itself has done good work. But what a sorry read the document is. The state of agri MIS found by the committee is more depressing than many privately suspected.
It is truly extraordinary that something like this was allowed to develop in the way that it did over so many years.
It's not my place to apportion blame at anyone.
I know these failures have happened many many times before and will reoccur at least as many times again. Are we simply meant shrug our shoulders and say either, "Ah well, you know, it was ever thus and ever it shall remain." Some industry players might even be adding, "there but for the grace of God go we"?
Some have proposed to the financial products and services review that the Corporations Act should stress ethical behaviour with much more vigour including in financial planner training. Unfortunately I'm not convinced this will stop any bad behaviour.
Only vigorous and sustained self-regulation is going to improve the financial service industry and weed out the bad apples.
Here are some interesting statistics from the Committee's Agri-MIS report. ASIC told the Committee that "between 2006 and 2009, 38.5 per cent of total Great Southern MIS sales and 23.6 per cent of Timbercorp sales occurred under their own AFSL."
"ASIC informed the committee that from 2006-2009 approximately 21 per cent of Great Southern products were sold by accountants as authorised representatives of Great Southern. Financial planners operating under external licensees constituted 68 per cent ... The pattern is different for Timbercorp, with accountants predominantly from small to medium accounting firms selling 18 per cent and Timbercorp advisers (also accountants) selling six per cent. The vast majority of sales (76 per cent) were from financial planners."
In any event the Committee only made three recommendations in relation to this agri scheme inquiry because much of the work in relation to disclosure, commission and so on is being dealt with the "Financial Products and Services inquiry" which may in future years be referred to as something like the "Margin-lending Fiasco Inquiry".
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