Last week, ifa reported that the Property Investors Council of Australia (PICA) had written to industry associations warning that a growing number of buyers’ agents, accountants and mortgage brokers were straying into financial advice territory by recommending structures such as trusts and self-managed super funds (SMSFs) as vehicles for rapid property accumulation.
“What’s happening here is some buyers’ agents, accountants and mortgage brokers are proactively giving financial product advice to encourage unsophisticated investors to set up these types of investment vehicles with the promise that it’s the only way they will be able to build a property portfolio fast, get rich and retire sooner,” PICA chair Ben Kingsley said in his nine-page letter.
He argued these practices not only breach the Corporations Act but also expose naive investors to unnecessary risks while undermining licensed advisers who are bound by best interests duties.
Speaking to ifa, FAAA’s Phil Anderson said: “The FAAA is approached by members from time to time about property investment-related activity and unlicensed people recommending SMSFs.
“This is an area of unlicensed activity that we are concerned about and will pass on cases of clear misconduct to ASIC. The increasing role of social media in promoting these schemes is also an area of concern.”
Industry observers also warn that social media has accelerated these practices, with “get rich quick” messaging reaching inexperienced investors.
One ifa reader commented: “I’ve seen a lot more real estate agents and mortgage brokers providing financial advice.”
Another ifa reader recounted working with a young couple whose goal was to build a deposit for an investment property, but in the adviser’s professional opinion, “setting up an SMSF and using that to buy the property was not a good idea given their modest balances, resulting lack of diversification and intention to start a family”.
Despite this, the couple was advised by a mortgage broker, referred by a real estate agent, that they should start an SMSF to buy the property, with the broker claiming they “shouldn’t listen to me, the adviser, because of ‘ulterior’ motives and ‘commissions’”.
“The clients came to me and enquired as to whether the mortgage broker’s position had merit. So I unpacked this and absolutely hammered the mortgage broker. The clients accepted my advice and we moved on.”
ASIC’s regulatory guides make it clear that advice around gearing, structuring and investing through SMSFs can amount to financial product advice – an area strictly off-limits to unlicensed operators.
PICA is now urging advisers to stay vigilant, probe client motivations and remind investors that such aggressive marketing carries significant risks.
“If you get rung randomly by somebody who is asking for advice on setting up an SMSF or setting up a trust to invest in property, the first thing that I would be saying to them is, ‘What’s inspired you to do this’ or ‘Who has inspired you to do this’,” he said.
“If that is being inspired by the property investment adviser group that they’re working with then that should be alarm bells for that financial planner.”
Kingsley, who also runs a licensed financial advice firm, said the trend was already evident in his own practice, with “11 random inquiries” last month from people wanting to set up trusts to invest in property.
“We obviously politely declined every one of them.”
This is nothing new at all.
It’s been going on for 20 plus years at least.
It’s just that ASIC seem powerless to do anything about it & hence it continues.
It needs to be stopped immediately & with significant financial penalties applied to those who are not licensed to provide
advice on matters that impact most people’s entire financial wellbeing.
From experience they are wasting their time, ASIC won’t do anything
Is this supposed to be a revelation?
Yep had some friends sent a very dodgy most basic outline of an SMSF LRBA strategy.
Accountant to set up SMSF, some small care and NO Responsibility.
So very very dodgy.
ASIC do ABSOLUTELY NOTHING.