Recent events in the real estate space have highlighted the need for properly regulated advice. Here’s the current climate, and here's how it can change.
The royal commission into banking has highlighted the need for properly regulated advice, the Property Investment Professionals of Australia (PIPA) has stated.
During the course of the royal commission, one example highlighted of a dodgy dealing was that of a former planner who allegedly pointed their clients to an “advocacy service” for property. That former planner was the majority owner, but he did not disclose this.
After a company audit, the planner was said to not have acted in the client’s best interest. PIPA chairman Peter Koulizos said this example highlights the need for property advice regulation, as the former planner ignored what regulation he was subjected to.
“While professionals such as buyers’ agents, property accountants and mortgage brokers operate within regulated environments, property investment advice does not,” Mr Koulizos said.
“Not many Australians understand that, which is why so many continue to be the victims of property investment ‘advice’ from unscrupulous fly-by-nighters.
“Over the years, we've heard about Aussies losing hundreds of thousands of dollars because they trusted someone who was only concerned with lining their back pockets.”
Mr Koulizos said he and PIPA have been campaigning for property investment advice regulation for years, but to no avail.
However, the current environment in Australia is not a total lost cause as NSW shows there is hope of holding those giving dodgy advice to a higher standard.
Property commentator Anna Porter of Suburbanite has welcomed recent legislative chances in NSW to quash conflict of interest relating to development sales in NSW as part of the Property, Stock and Business Agents Amendment (Property Industry Reform) Bill 2017.
"Under new laws, if the referrers are being paid by the buyer for a service (for their mortgage broking, financial planning or accounting services), they can not also act on behalf of the seller or receive a fee from the seller,” Ms Porter said.
“That would be a conflict of interest and as the fees filter down from the developer/seller, this would be in breach of the legislation.
“Some well-known mortgage broking firms openly admit to receiving $5,000-$10,000 per referral in their pocket. This is effectively a conflict of interest as the buyer is a client of the brokers, but the fee that comes down from the investment firm is from the seller — the developer.”
She said referrers who receive a significant part of the fee would be likely directing clients to developers because of the incentive and not based on the actual advice.
“The referrers often don’t vet the investment firm’s properly, or just don’t care of the quality of advice being offered, they simply shop around for an investment firm purely based on the fees on offer,” Ms Porter said.
“If these advice providers also hold their own real estate licenses and go through the appropriate education and are held to the same ethical responsibilities, the legislators believe that the referrer can better identify if that property firms approach or offering suits the client they are referring. It's intended to stop brokers, planners and accountants being compelled solely by fees and commissions; often secret commissions in our experience.”
"So, if a referrer does hold a real estate license, and does receive a part of the sale commission, they may find themselves in breach of the ethical requirements under the act."