In its submission to the Senate economics references committee on home ownership, the Consumer Policy Research Centre (CPRC) – a representative of consumer groups – has asked the federal government to require anyone providing property investment advice to hold an Australian Financial Services Licence.
The group argues that in order to stop “risky property lending advice”, the recommendations from the 2016 Scrutiny of Financial Advice Inquiry relating to property advice should be adopted.
Among them is the recommendation to make the regulation of property investment advice a Commonwealth responsibility and insert a definition of property investment advice into the Corporations Act and the Australian Securities and Investments Commission Act.
“There is a well-known gap in consumer and financial system protections – there are no protections to guard against poor quality property investment advice,” the CPRC said.
“Australia has, rightly, introduced strong and clear protections to ensure that financial advisers need to provide recommendations in the best interests of their clients. These protections do not cover situations where someone is seeking to invest in real estate – they only apply to financial products such as shares,” it said.
According to the CPRC, the gap arises with the issue falling “neatly” between the responsibility of the federal and state governments, namely, while the federal government regulates financial services markets, the state and territory governments regulate property transactions.
“Advice on property transactions has not been addressed, leaving investors at the mercy of an unregulated sector that can push people into poor investments counter to their interests, including known high-risk investments like land banking,” it said.
“This inquiry should consider the ongoing risks that investors and the people who live in investment properties face because of this regulatory gap,” it said.
The CPRC also raised concerns regarding remuneration structures that “lead to professionals recommending inappropriate loans”.
The group argued that despite efforts to address conflicted remuneration in financial services, recent moves by major banks to revert to sales-based bonuses and allegedly untested compliance in the mortgage broking sector raise concerns about self-regulation.
“In 2024, major banks have stepped away from their commitments to curb conflicted remuneration in lending. Major change has come from Commonwealth Bank (CBA), which has changed how it structures bonuses to preference sales results. Westpac and NAB quickly followed CBA’s lead. This shows that banks cannot be trusted to self-regulate conflicted remuneration,” the CPRC said.
“Like with financial advice, limits on conflicted remuneration should be formalised in legislation rather than left for reversible industry commitments.”
It added that the other source of potential harmful lending advice can come from the mortgage broking sector, arguing that ASIC should be directed or undertake new research into mortgage broker remuneration and the quality of recommendations from brokers.
“With mortgage brokers now arranging most loans in the home lending market, regulators need to test if legal protections are working and if brokers are helping or harming competition in the market in 2024,” it said.
Last thing I want as an adviser is having to deal with investment properties. It’s bad enough now when someone who shouldn’t be borrowing gets referred by their lender to see a financial planner. (purely because the lender wants a get out jail free card).
I’m not taking that responsibility on.
If you want property advice regulated, the country is going to need A LOT more advisers.
I’m happy for a separate industry of property advisers to pop up. They will end up wearing the bulk of the regulatory funding fees.
In step the LARGE Super funds? Selling “rent to buy” to the younger generation? Probably make a new “Class of Advisor” for this situation – avoiding the red tape as they go? Seems like a good strategy – which looks like working for Financial Products? FAA will likely go along with this – looking to get more members?
Could provide you with a massive list of companies and culprits.
I have provided ASIC with a massive list and they have done nothing, save yourself the stress and disappointment
Anyone suspect – Industry Super longer-term looking to get into the rent-to-buy market? There is a younger generation out there having 11.5% of gross salary taken “for their retirement” – makes it harder to save for a deposit I would have thought? Time to move the Real Estate Agents out etc – in 10 years time a “new class” of Real Estate Agent and Broker could emerge – with a smile?
Good point, is it Industry Supers long wanted “almost” Direct Property sales pitch that helps protect their FUM from SMSF direct property ?
A good pick up.
I love how Industry Super doesn’t want to allow people to access Super for their own house. But the same Industry Super want to keep Australians soon to be 12% pa
Contributions for life, reducing people’s ability to save a home deposit and then Industry Super wants to rent then one of their properties for their whole life.
Ensures Industry Super keep the Union & Bikie bosses clipping the Super ticket as they please $$$$$$$$
This is music to my ears. It has been talked about for ages, but no one’s interested in taking it further. For many years, property investment has been a popular choice for Australians looking to grow their wealth. However, it has also been an area where some financial advisers have taken advantage of their client’s trust and provided misleading or unsuitable advice.
I have seen many times where an AFCA complaint has been thrown out due to advice on Property Investments. AFCA and ASIC say, “We don’t rule on Property Investment Advice!”
= Client has no recourse against the Planner
Won’t happen RE lobby is very very powerful.
I watch property people give financial advice all the time with no AFSL. Its about time.
A Home property is an Investment of sorts and a bloody big one these days.
Often a Home property includes a loan.
So lets make ALL property under an AFSL and more mass BS over Regulation hey.
Is this the same type of so called Consumer group that has helped TRIPLE the cost of Real Advice in the last 15 years and been so successful in restricting bad advice that only 10% of people can afford Real Advice now.
Is this the same so called Consumer groups that makes Real Advice so expensive that Australians are being scammed out of $3 Billion each year as they CAN’T afford Advice.
Red Tape WARRIORS cause more harm than good.
Disagree anyone that get LMI should see a financial planner. I worked in the USA during the mortgage crisis.
I started in the USA durring the Mortgage crisis. It was horrible. Imagine going to westpac and the atms dont work. Yes for god sake anyone with LME should see a planner with a short SOA. Hey smart people that read these comments can ASIC do this by regulatory privilege no need for parliament.
Sure LMI is additional risk of course with lower deposit & higher loans.
Don’t Mortgage Brokers and Banks already have to clearly explain these extra LMI loan level risks ?
The problem with more BS mass over regulation is that it stops 90% of people getting Advice as the REGS are so stupidly onerous and thus advice too costly.
More Regulation won’t save LMI people as these people can’t afford real advice.
How about cut 50% to 70% of BS Regs from Advice and more people will then afford it.
Also – US home loan market way different. Aussies cant just walk away from bad Home Loan as get made personally bankrupt too. Plus we dont have 2 year intro honeymoon periods where real repayment rates aren’t charged and the initial loan amount then increases in value over that 2 years. And if they could barely afford the honeymoon intro rates, had no deposit then of course they couldnt afford the real home loan repayments.
That is not the answer to my question. Can Asic do this with out minister or parliamentary approval? Also in the USA many of those who walked away from there mortgage also had lots of credit card debt. They whole system was messed up.