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Agribusiness Managed Investment Schemes: Bitter Harvest

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Agribusiness Managed Investment Schemes: Bitter Harvest The Senate Economics References Committee Agribusiness managed investment schemes Bitter harvest March 2016 © Commonwealth of Australia 2016 ISBN 978-1-76010-390-3 This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivs 3.0 Australia License. The details of this licence are available on the Creative Commons website: http://creativecommons.org/licenses/by-nc-nd/3.0/au/ Printed by the Senate Printing Unit, Parliament House, Canberra. Senate Economics References Committee Members Senator Chris Ketter Queensland, ALP (from 1 July 2014, Chair from 22 October 2015) Senator Sam Dastyari New South Wales, ALP (Chair from 2 July 2014 to 22 October 2015) Senator Mark Bishop (Chair until 1 July 2014) Western Australia, ALP Senator Sean Edwards (Deputy Chair from 2 July 2014) South Australia, LP Senator David Bushby (Deputy Chair until 2 July 2014) Tasmania, LP Senator Matthew Canavan (from 1 July 2014 to 23 February 2016) Queensland, LNP Senator the Hon. Kim Carr (from 1 July 2014 until 15 May 2015) Victoria, ALP Senator Jenny McAllister (from 15 May 2015) New South Wales, ALP Senator Louise Pratt (until 1 July 2014) Western Australia, ALP Senator Dean Smith (from 23 February 2016) Western Australia, LP Senator John Williams (until 1 July 2014) New South Wales, NATS Senator Nick Xenophon South Australia, IND Senators participating in this inquiry Senator Chris Back Western Australia, LP Senator the Hon Bill Heffernan New South Wales, LP Senator Joanna Lindgren Queensland, LP Senator Deborah O'Neill New South Wales, ALP Senator Peter Whish-Wilson Tasmania, AG Secretariat Dr Kathleen Dermody, Secretary Ms Morana Kavgic, Administrative Officer (until 27 February 2015) Ms Ashlee Hill, Administrative Officer (from 23 February to 24 September 2015) Ms Sarah Batts, Administrative Officer (from 25 September 2015) PO Box 6100 Parliament House Canberra ACT 2600 Ph: 02 6277 3540 Fax: 02 6277 5719 E-mail: [email protected] Internet: www.aph.gov.au/senate_economics iii TABLE OF CONTENTS Membership of Committee iii Abbreviations .................................................................................................. xiii Preamble ......................................................................................................... xvii Explanation—terms of reference ......................................................................... xix Executive summary .......................................................................................... xxi Tax incentive ...................................................................................................... xxii Geared investments ............................................................................................ xxii Financial advisers and trust ...............................................................................xxiii Product producers .............................................................................................. xxiv Liquidation ........................................................................................................ xxvi Future of agribusiness MIS ............................................................................... xxvi Enforcement...................................................................................................... xxvii Findings and recommendations .......................................................................xxviii Chapter 1.............................................................................................................. 1 Introduction .............................................................................................................. 1 Conduct of inquiry .................................................................................................. 1 Terms of Reference ................................................................................................ 2 Background to inquiry ............................................................................................ 2 Submissions ............................................................................................................ 4 Confidential material .............................................................................................. 4 Scope and structure of report .................................................................................. 5 Acknowledgements ................................................................................................ 7 Chapter 2.............................................................................................................. 9 Managed investment schemes ................................................................................. 9 Structure.................................................................................................................. 9 Agribusiness MIS ................................................................................................. 12 Forestry MIS ......................................................................................................... 15 Horticultural MIS ................................................................................................. 19 Agribusiness MIS collapses ................................................................................. 21 Conclusion ............................................................................................................ 27 Part I—Retail investors and incentives to invest Chapter 3............................................................................................................ 31 Human cost .............................................................................................................. 31 Personal accounts ................................................................................................. 31 Chapter 4............................................................................................................ 37 Taxation concessions .............................................................................................. 37 Tax benefits as driver of investment .................................................................... 37 Significance of ATO rulings ................................................................................ 41 Chapter 5............................................................................................................ 51 Geared investment .................................................................................................. 51 History of predatory lending ................................................................................ 51 Borrowing for annual fees .................................................................................... 57 Approval process—loan application forms .......................................................... 60 Irresponsible lending ............................................................................................ 65 Pressure selling ..................................................................................................... 70 Chapter 6............................................................................................................ 75 Retail investors ........................................................................................................ 75 Behavioural economics ........................................................................................ 75 Trust ...................................................................................................................... 77 vi Part II—Promoters and producers of MIS—advisers, product issuers, ratings experts, lenders and class action lawyers Chapter 7............................................................................................................ 87 Financial advice and advisers ................................................................................ 87 Agribusiness and financial advice ........................................................................ 87 Deficiencies in advice ........................................................................................... 88 Licensing requirements ........................................................................................ 88 Inappropriate advice ............................................................................................. 90 Commissions ........................................................................................................ 95 Recent legislation ................................................................................................. 98 Holding financial advisers to account .................................................................. 99 Role of accountants ............................................................................................ 100 Conclusion .......................................................................................................... 103 Chapter 8 ............................................................................................................... 105 Education and culture .......................................................................................... 105 Financial literacy ................................................................................................ 105 Future of Financial Advice Reforms .................................................................. 107 Financial advisers—education and training ......................................................
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