Unlicensed property spruikers are encroaching on advisers’ turf, PICA warns

In a letter to industry associations this week, the Property Investors Council of Australia (PICA) said 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 (SMSF) 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.

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.

“The emerging problem we are flagging here is that there is a growing number of buyers’ agents, property investment advisors, mortgage brokers and accountants, all with potential direct self-interest and conflicted remuneration, who are now proactively promoting these ‘fast track and get rich quick’ schemes,” Kingsley said.

The letter flags the “hyperscaling” of social media promotions that promise outsized returns, spruik tax incentives as a reason to invest, and appeal to vulnerable investors with “quit your job style” messaging.

PICA warned that such tactics echo past spruiking scandals and could invite a regulatory crackdown.

“Offering up ‘get rich quick’ claims naturally lead to steady inflows of enquiries from enthusiastic, yet amateur and naïve investors, who fall prey to their aggressive claims,” Kingsley said.

“As a peak association representing your professional members and in the interest of upholding the professionalism and reputation of your industry, we ask that you inform your members to steer clear of such marketing activities, adopt a more balanced approach, and avoid any future risk of a ‘please explain’ by the regulators,” he added.

The group cautioned that the rise of speculative activity risks shifting residential property from a long-term rental supply base into a “speculative traded commodity”, with negative consequences for both housing affordability and financial stability.

“If the trend we are seeing becomes ‘mainstream’ from more operators, it will be impossible for governments or regulators to ignore the eventual projected impacts and outcomes, and they will act. And when they do, we run the very real risk that they will over-regulate and overtax, causing even more pain for all of us involved,” Kingsley said.

He called on professional associations, including those in financial advice, to remind members of their legal obligations and the importance of disclosure.

“Your members, who are operating or facilitating investments in residential property, need to understand and explain these risks, including the current elevated risk associated with ‘animal spirits’ behaviours, which we are starting to see the emergence of in this space,” he said

Kingsley added that PICA is open to working with financial advice bodies on joint education initiatives and compliance resources but warned the industry: “This irrational exuberance needs to be reined in as it will only end badly.”

Probe the source of client motivations

Speaking to ifa, Kingsley had a further message for financial advisers, urging them to probe the source of client motivations, warning that many are being swayed by unlicensed operators.

“If you get run 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.”