Future grim for planner

The collapses of Timbercorp and Great Southern are threatening the future profitability of Australia's largest financial planning group, Professional Investment Services.

It is not just the loss of lucrative 10 percent commissions that the Brisbane-based PIS and its planners gained from recommending the agribusiness schemes to its clients. It is also the danger that bruised clients either withdraw from the financial planning giant or, worse, sue it for failed agribusiness investments.

PIS has scars from previous experience in this kind of fallout. Its 2006-07 accounts include a A$17 million provision for a class action brought by Slater & Gordon when it represented former clients who invested in Westpoint through PIS.

Stress within the PIS group — which covers more than 1400 financial planners — was evident recently when the management considered splitting the business in two. Chief executive Grahame Evans reportedly referred to this as "de-risking" the business.

PIS was so close to the two managed investment schemes that it disclosed it was an investor in each of the failed agribusiness schemes.

There are also signs that PIS received handsome undisclosed payments from agribusiness schemes — known internally as either override payments or strategic partnership agreements.

The terms "override payments" and "strategic partnership agreements" are referred to in soft dollar disclosures obtained by BusinessDay.

"Soft dollar" refers to sponsorships or other arrangements received by planners, as opposed to "hard dollar" commissions. Soft dollar payments are disclosed in the registers obtained by BusinessDay.

"Overrides" or "strategic partnership agreements", which represent some form of contractual payment from various investment options and PIS, are not disclosed in the registers or PIS's financial services guide.

The importance of Great Southern, Timbercorp and other agribusiness managed investment schemes to PIS's business model is illustrated by so-called soft-dollar sponsorships.

An analysis of PIS's 2007-08 soft-dollar register obtained by BusinessDay shows 20 percent of all sponsorship dollars came from agribusiness schemes. This included payments from both Great Southern (A$23,000) and Timbercorp (A$12,500).

In 2008-09, managed investment schemes contributed A$70,000 in sponsorships, including A$5500 from Great Southern.

Comment was not available from PIS yesterday.