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Beware The Two-Hatted Advisor

Beware The Two-Hatted Advisor
June 20, 2016 Propertyology Head of Research and REIA Hall of Famer, Simon Pressley

Property spruiking, where marketeers get massive rebates from developers for pushing properties onto unsuspecting investors, has existed in this country for decades. Over the last five or so years I have observed an alarming new approach to property sruiking which already has the potential to cause even more serious repercussions than the collective $1.5 billion which mum-and-dad investors lost in the Storm Financial collapse.

The new Storm-in-waiting is in the form of mortgage brokers, accountants, financial planners, and so-called buyer’s agents who are receiving between $10,000 and $50,000 each and every time they can convince one of their own trusting clients to buy a specific property. These service providers often have a reasonable reputation in their chosen field so the client’s guard is down when the advisor starts talking up a specific property. There’s no red flag screaming ‘marketeer’! But the Bartholomew & Associates of the world are no more qualified to give property investment advice than the local hairdresser. And it’s property investors who are paying the price.

Developers and salespeople are an integral part of every community. And, there is only so much that legislation can do to protect unsuspecting consumers from the rogue element which exists within every profession. But, successive federal governments have failed to address this issue. So, I applaud the Queensland State Government for agreeing to review real estate and financial advice regulations. I am not convinced that the root of the problem is fully understood though.

The microscope needs to be focused on the alarming business practice being adopted by these two-hatted advisors. And, it would be grossly naive to think that the answer is to pass legislation to ensure that developer rebates are being disclosed!
Just ask anyone who lost their nest egg in the Storm collapse what sought of protection they received as a result of financial planners disclosing commissions on managed fund products. Answer, ‘zero’.

I would like to see laws passed so that any one at all who receives remuneration from the purchase or sale of property must hold a real estate license. A plumber who wants to also wear an electrician’s hat must first complete the apprenticeship and obtain a license; the same should apply when a financial services business wants to suddenly earn a living out of promoting property.

Just like the recent FIFO legislation now prohibits financial planners from receiving commission on managed funds, all forms of developer rebates need to be outlawed, too. It is hypocritical to suggest that any mortgage broker, accountant, or financial planner who is being remunerated via a developer rebate is acting in their client’s best interests.

The relationship between the consumer and (say) a mortgage broker is vastly different to a traditional property marketeer. The Bartholomew & Associates of the world are simply swapping their everyday hat with a property hat and then claiming that, out of the 9.3 million properties in the country, they (conveniently) have a list of the most suitable ones for their client – ‘trust me’.

Real estate engagement documentation needs to more clearly pronounce who you work for – buyer or seller. And, service providers must be paid by who they represent. I am aware of numerous so-called Buyer’s Agents who receive remuneration from the vendor – rebates as high as $50,000 from new developer stock – who are they working for?

Legislators need to close the lid on the conflict of interests and consider how to protect the client’s best interests!

The legislative reform following the Storm collapse totally ignores direct property assets. But, just like Bartholomew’s ever-expanding collection of hats, I believe this issue reaches far beyond the single problem of traditional marketeers and into the realm of property investors’ own trusted advisors.

Until we see legislative change, I have this advice for consumers:
Be wary of anyone promoting brand new property. A property developer can include any number of middle-men and load all their kick-backs into the purchase price of a new build, but it’s physically impossible for this to happen when an investor is buying an established property from a private individual.

Remember that qualifications as an accountant (tax), mortgage broker (loans), and financial planner (managed funds) should not be confused with qualifications as an accredited property investment advisor.

Ask to see proof of your advisor’s qualifications as an accredited property investment advisor with one or both of the industry associations, PIPA or PIAA.
Ask them how they make their money. Even if they disclose the rebates they receive, ask yourself why the property they’re pushing (conveniently) happens to be the right one for you when there are 9.3 million properties to buy in Australia.