We have been acting for a number of clients who have had the unfortunate experience of being advised by Financial Planners to invest in Agricultural Managed Investment Schemes. These schemes were all the rage of yesteryear, with Financial Planners and Accountants, who were actively and aggressively spruiking the benefits of these schemes and the associated tax benefits. The principal failure when providing advice to investors in respect of these Managed Investment Schemes, was whether it was a good investment having regard to the investor’s individual circumstances. Advising one to sell down $5 million worth of property assets, and put the funds into a speculative investment such as an Agricultural Managed Investment Scheme is a nightmare waiting to happen from a litigation lawyer’s perspective.
This frightening prospect became a reality for a lot of hard working professionals and individuals when these Agricultural Managed Investment Schemes were recommended by many Financial Planners. A lot of the time we have seen that investors made the investments by putting all faith and confidence in their Professional Advisors, namely the Financial Advisors and Accountants. However, it is easy to bring such advice into question whereby Financial Advisors have:-
- failed to make an adequate assessment of the investor’s risk profile;
- failed to identify whether the quantum of the Agricultural Managed Investment Scheme and that particular asset class is appropriate for the investor in question;
- failed to give an adequate statement of advice or no statement of advice at all; and
- received commissions of about 10% or higher of the monies invested, and 10% continuing on an annual basis for any monies received by the schemes for fees paid by the investor.
That’s right – on a $5 million investment, the upfront commissions for these financial professionals could be over $500,000, and ongoing commissions amount to thousands of dollars. The accountants usually had a referral fee of about one third of these commissions for referring the investor to the financial advisors. As you can see the large commissions in some instances appear to have clouded some advice provided by these professionals in relation to whether it was in the client’s best interest to proceed with the investments.
These investments seemed appealing until the forests burned down. We use ‘forests’ as a metaphor as there are a number of different Agricultural Managed Investment Schemes that we have seen that have predominantly failed. We tend to become involved when the investments fail and hard working professionals and individuals appear at our office having been put into a position where they have lost their life savings and hard work at the hand of professionals that they have put their faith in. We have had many individuals in this situation that appear at our office in a state of despair, which is completely understandable.
We are in the fortunate position in that we can assist people in these situations, and pursue claims against Financial Advisors and Accountants on their behalf where it is warranted. The regulatory frame work in Australia does require an Australian Financial Service Licence to be issued to a responsible entity for financial advice to be given by their authorised representatives (Financial Advisors), and such entities are generally insured with substantial policies that respond.
We have achieved some fantastic results for clients who have had the misfortune of being the recipients of negligent financial advice. Ordinarily these claims settle prior to trial given that the Australian Financial Services Licence holder and/or authorised representatives are generally insured. Even in circumstances where the claimant does not have the funds to pursue the claim, litigation funders generally fund such action in circumstances where an insurer will respond on behalf of a party to the claim.
We would be happy to assist you or any of your clients in respect of any of these matters. Please note that there are strict statutory limitations that apply to claims of this nature.
Now that the forests have burned down, we as professional advisors at least have the responsibility to restore people, as far as the law will allow, back to their position had they not received negligent advice. Some of the stories that we have heard would make your stomach churn, but we are grateful to be in a position to assist people in those circumstances where we can.
Article Written By: Shaun Rose