Heavy rains have been falling in parts of south-eastern Australia, bringing welcome relief for some of the country's drought-stricken farmers. Despite this, with the notable exceptions of Gippsland in Victoria and south-east Queensland, June rainfall was below to well below average in south-west Western Australia and southern and south-eastern Australia, according to the Bureau of Meteorology drought statement for the 12-month period ending June 30. While the weather is all important for farmers, it can also have an impact on the mood of rural investors.
"Rain is always a major talking point and can change the mood of investors in the country very quickly," Rabo Financial Advisors general manager Colin Williams says. "What's happened is that when it rains it does provide some comfort to country investors and they become more confident in investing." Some areas have recently recorded their best rainfall in years, but much more is needed to end the six-year drought. "Even a good year when you come to the country it's brown and burnt off, but this is a shocking year with dry feed being right down and very little rain," Wagga Wagga-based Ingram Sutton Financial Services principal Doug Sutton says.
According to Sutton's partner, Patrick Ingram, some farmers are in their third or fourth year of drought. "There are a number of farmers who have been struggling and it's a real worry," Ingram says. While many farmers use accountants to manage the debt structure of their businesses, stories are circulating about how some farmers are struggling to keep up the payments on the most basic of financial tools. "I had a woman say that she had a term of life policy, which she wanted to cancel as she couldn't afford the $20 a month insurance. She was desperate and needed every dollar she could get despite the fact by forgoing that policy she would not be able to get the same level of insurance again," Sutton says.
"They can become uninsurable, but she just couldn't afford it. These people are down to their last dollar." According to another Wagga Wagga-based planner, ANZ Financial Planning's Peter Hulme-Jones, tight liquidity in farmer's cash flows means many have been unable to place money into superannuation, with many preferring to use farm management deposits. Farm management deposits provide a risk management tool to help farmers deal with uneven income. This scheme allows a farmer to claim a deduction for farm management deposits made in the year of deposit. If a farmer withdraws a farm management deposit, the amount of the deduction previously allowed is included in their assessable income in the withdrawal tax year. "That comes straight off the bottom line so in the good years they can put money into those deposits," Hulme-Jones says. "They probably need educating in terms of how to use managed funds and superannuation as many of the farmers over the age of 65 have their money in term deposits, which is crazy because they could have their money in superannuation and still have access to those funds with the tax benefits." Williams says it is not just about investment financial planning, it is about how farmers run their lives from year to year in good times and bad.
"Farm management deposits were designed for running your business, not for investment, the idea being that in good times you can put it away and in bad times pull that money out to keep the business running," he says. Succession planning has become far more of an issue as well, with children not wanting to take on the family farming business. "Most farmers tend to invest back into their farm or even by buying the farm next door by using debt, but the issue now is that many of these farmers' kids are not interested in working on farms," Williams says. "We have a succession facilitator within Rabobank, but that aside we make sure that the correct risk facility is in place, because it's no good having a great asset which can be realised in 20 years if you die tomorrow.
"We look at how they can set up a regular savings plan in the form of a trust or in their individual name to start building up a pool of funds, which can then be distributed to the kids at a later date." It is not just farmers who are struggling with succession issues in the country. "Succession issues are a major issue. Quite often you train people up and it doesn't work out and you've already put in major dollars or they want to go to the city," Sutton says. Hulme-Jones, Sutton and Ingram are all based in Wagga Wagga, a New South Wales town of 60,000 people around halfway between Melbourne and Sydney. The impact of the drought is offset by the fact there are three major sources of employment in the area.
"We've been very fortunate here over the years having the army, the air force and the university that provides a lot of constant income and employment and to that extent drought proofs us against the conditions," Ingram says. "We are still rural but the overall effects will only have a minimal effect on the town's economy." All three planners agree that even though they are in town, the style of planning is fundamentally different to that of their colleagues in capital cities. "The thing from a financial planning point of view is that you are a member of the community and people can see you all the time as you are very often members of the same social groups and networks," Ingram says. "Being in a relatively small community you really have to be who you say you are. "City people tend to be buying a service, where country people are looking to buy a relationship." Just over the border in country Victoria, Albury-Wodonga FPA chapter head Colleen Peffer, from Bridges Personal Investment Services, says it is very much the same. "We find that many of our clients become friends because we see them socially in such a small environment, we have dinner with them which I guess you just wouldn't do in the city," Peffer says. She says for many in country towns there is as much need for basic financial counselling as there is for more complex financial planning. "Financial planning is one thing, but financial counselling is something different, and the problem is there aren't enough financial counsellors around to help those in dire financial straits," she says.
"They are a different type of client and it is counselling rather than giving financial advice, so it's more about cash management and budgeting." She says she recognises there is a compliance issue surrounding giving general advice and providing regulated financial advice, and to that end the Albury-Wodonga FPA chapter is providing pro bono counselling for those in distress. For Sutton and Ingram, compliance issues surrounding the implementation of financial services reform (FSR) are core to the reason a large segment of the community is now being excluded from advice. Sutton says this has also led to many smaller country towns not having any planning practices, as the costs involved have forced out local agents, leaving those needing advice to be serviced from larger centres.
"FSR has worked in reverse, so instead of more people getting service there are less people receiving advice because of costs surrounding compliance issues," he says. Ingram adds: "The small punter who needs the help is not getting it because financially we just can't afford it. In the old days we would have just done a general financial plan, but now you just can't do that, you have to provide a statement of advice. Now you try and help them as much as you can without giving them advice." Williams says managing some rural areas provides its own set of problems. "What I found is that advisers in each town are different," he says.
"I've put great emphasis on the advisers to run their own show within our guidelines. We give them a lot of freedom. "While not given a completely free rein they are given scope to go and pitch their business in their own way." "If there are dodgy deals and their names are associated with them, they're not going to last very long." Some practical difficulties in running country practices are lessening due to better technology, such as the Internet, wireless email devices and mobile phones. "Sometimes tracking investors down is the hardest problem. Some of these farms are a number of hours away from the large community and it's hard to track the clients down, particularly when things like medicals for life insurance need to be done," he says.
