THIS is a story of greed, lust and extended lunches.

A sordid tale of wine and walnuts, truffles and tree farms.

Across the country, new and exciting commodities are being packaged up by financial institutions, and flogged off to unsuspecting consumers in the form of tax-effective investment packages, most of which hold scant prospects of any eventual reward.

Young, tertiary educated men (the finance industry still regards the fairer sex as a bit flighty) travel the country seducing financial advisers with promises of high commissions, luxurious holidays and financial kick-backs.

This, of course, is nothing new.

I recall with fondness a trip to Australia’s Capital, Sydney, in 1995.  One of our leading financial institutions was treating advisers to an investment briefing at their plush office complex near Circular Quay.

Being incorruptible, but more than open to a free weekend away, I picked up a business class flight to Sydney Airport, where I was met by a limo to take me to my humble lodgings at The Regent.

After a more than adequate dinner at Rockpool, we retired to the Regent’s lounge bar where my hosts suggested Bollinger might be a suitable refreshment to help me unwind after a long day. 

Being partial to the stuff, of course I agreed.

The first bottle quickly vanished, followed by a second, and by the time the bill arrived at around 2am, six of us had managed to build the bar tab up to well over $1,000.  This was the Regent, remember.

Before you could say junket, mine hosts whipped the account away, and suggested some company-funded entertainment at Kings Cross might be in order.

I declined, not because of any puritanical streak, simply because I had become somewhat cross-eyed from unjudicious consumption of Bollinger, a simple pleasure I can heartily recommend.

Returning to the airport the following day, an executive of the company involved suggested if I could see fit to put more business their way over the coming year, I would be added to their `A’ list, which was currently enjoying a similar standard of hospitality, but in Prague rather than Sydney.

Those days are gone.  Gone, that is, except for those advisers who have turned to the dark side and championed the cause of Managed Investment Schemes.

Over the last few years, the financial services industry has been dragged kicking and screaming into the modern world.  Overseas conferences, subsidised software packages and exorbitant commissions are now largely a historical footnote.  Growing pressure from consumer organisations is finally starting to force some advisory networks to move to fee-based remuneration platforms, although the transition is moving at a snail-like pace.

Advisers are now required at law to provide full disclosure of entry and exit fees, risks, and a range of alternative investment options to consumers.  Fund managers now focus on adviser education rather than bribery.  A shame in some ways — in 1998, I received a record 17 leather-bound diaries in the weeks leading up to Christmas from financial institutions.  Useful for passing off to relatives during the festive season.  Unfortunately, within five years, the gifts had been replaced with computer-generated Christmas cards.

Thankfully, timber plantations have come to the rescue.

Imagine the delight of the financial advisory community when they found out that by recommending forestry investments to their clients, not only could they pick up an 8% commission, but a free holiday as well.

Strangely, that newly found enthusiasm for recommending forestry investments has come at the same time commissions on traditional investments have been slashed.

In fact until a few years ago, plantation investments were regarded with suspicion by most discerning advisers, who rightly recognised that shares, cash and property were the only real pathways to sustainable wealth.  Suddenly, alternative investments, including forestry schemes, have appeared on most advisory networks ‘recommended’ lists.

Not that I would doubt the research skills of those advisory networks’ technical staff, but few of any of the schemes on offer have yet proved an ability to provide any sort of sustainable investment return.

But financial advisers are only human, and if selling Managed Investment Schemes can pay an 8 per cent commission, then surely they warrant a closer look.

Great Southern Plantations are one of Australia’s largest MIS promoters, and they’ve learned a few lessons from the 1990s.

A recent ‘study tour’ paid for by Great Southern showed advisers the best Western Australia has to offer.  Wineries, olive groves, timber plantations, and some very comfortable accommodation at one of Perth’s finest hotels. 

All quite legitimate of course, and a welcome break for advisers from the boring day-to-day routine of helping clients make money, and the associated paperwork needed to disclose entry and exit fees.

You see it’s all much easier to sell Managed Investment Products.  There are no entry fees.  There are no exit fees, simply because you can’t exit the investment.  You can’t quantify a return, because legislation prohibits it.  All the adviser can do is stress the tax advantages.

The actual investment return is irrelevant, because most potential clients aren’t interested.  They are looking for the quick fix, the immediate tax break, and they don’t care how they achieve it.

Little wonder so much money has flowed into these schemes in the last few years.  Believe it or not, the economy is pretty robust at the moment.  There are plenty of taxpayers who, every June, visit their accountant and demand a solution to their ‘tax problem.’  More and more often, the response is a recommendation to pump some money into a MIS.

There are three winners here:

• The promoters of the schemes, who escape the regulatory scrutiny of fund managers by offering intangible, unquantifiable returns from investments that have an unknown future demand.

• Financial advisors, who have found a way to return to the glory days of the 80s and 90s, where commissions were high, the lunches were long, and the client was irrelevant.

• And the forestry/walnut/truffle/grape/olive businesses, who can see a bright future for their taxpayer-subsidised industries.

Pull the pin on the tax breaks though, and a different story emerges.

Jarvis Cocker is an independent media and communications consultant specialising in the Australian financial sector.  He has previously worked as a senior manager with one of the country’s largest stockbroking firms and as a policy advisor to a Federal Government department.  Now living in Tasmania, he tries to temper his sometimes rabid capitalist views with infrequent visits to the Tasmanian wilderness. 

Jarvis Cocker

Thankfully, timber plantations have come to the rescue.

You see it’s all much easier to sell Managed Investment Products.  There are no entry fees.  There are no exit fees, simply because you can’t exit the investment.  You can’t quantify a return, because legislation prohibits it.  All the adviser can do is stress the tax advantages.

The actual investment return is irrelevant, because most potential clients aren’t interested.  They are looking for the quick fix, the immediate tax break, and they don’t care how they achieve it.

Little wonder so much money has flowed into these schemes in the last few years.  Believe it or not, the economy is pretty robust at the moment.  There are plenty of taxpayers who, every June, visit their accountant and demand a solution to their ‘tax problem.’  More and more often, the response is a recommendation to pump some money into a MIS.