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The unregulated business of property investment advice

Record low interest rates are stoking Australia’s property market, with some expressing concern that property spruikers are targeting self managed superannuation funds investing in the sector. Providing…

Property investment advisers do not need a licence - in fact, no qualifications are required. Image sourced from www.shutterstock.com

Record low interest rates are stoking Australia’s property market, with some expressing concern that property spruikers are targeting self managed superannuation funds investing in the sector.

Providing property investment advice can be a very lucrative business. Anecdotally, a property investment adviser can earn anywhere between $20,000 to $40,000 commission on one property deal, selling a $500,000 new apartment or house-and-land package. Considering the money you can make, some of you reading this might now be thinking that working as a property investment adviser is a smart career move. But before you do, answer the following questions.

  1. To become a property investment adviser, what educational qualifications are required?

    • Diploma in Financial Services
    • Diploma in Real Estate
    • Bachelor of Business

    Answer: none of the above.

    That’s right, you can advise someone on buying a million dollar property and make tens of thousands of dollars in commission in this one transaction, yet you are not obligated to have any educational qualifications; not even completed Year 12.

  2. The compulsory continuing professional development requirements for a property investment adviser are:

    • Attendance at the national conference (15 hours)
    • Equivalent of 20 hours which can include attendance at seminars, conferences, guest speaking
    • Equivalent of 30 hours which must include attendance at the national conference.

    Answer: none of the above.

    It makes sense, doesn’t it? Why would you have to do any ongoing training or development to keep up your skills if there was no minimum training or education requirements when you first started in the job?

  3. The licensing requirements to become a property investment adviser include:

    • Police check
    • Minimum entry educational qualifications
    • Endorsement from two current property investment advisers
    • All of the above

    Answer: none of the above.

    A life insurance salesperson needs to be licensed. A real estate agent needs to be licensed. You would think that someone who is advising you on making one of the biggest decisions in your life is also licensed. Well, you thought wrong.

  4. The regulatory body that oversees the property investment advice industry is:

    • Real Estate Institute of Australia
    • The Financial Advisers Commission
    • Australian Securities and Investments Commission (ASIC)
    • A and C

Answer: none of the above.

You would hope that a large and powerful organisation such as Australian Securities and Investment Commission (ASIC) would be keeping an eye on investment advisers who are involved in some of the most important and expensive life decisions people will make. Unfortunately this is not the case. “Why?” I hear you ask.

The simple answer is real property is not considered a “financial product” under the Corporations Act. Anyone can give advice on real property and is not obligated to abide by the Corporations Act nor do they come under the scrutiny of ASIC.

This is despite well-known cases such as the collapse of the high-profile property spruiker Henry Kaye’s empire, which was prosecuted by ASIC in 2003 for providing false and misleading investment advice to property investors. In 2010, Kaye was disqualified by ASIC from managing corporations for five years.

The Property Investment Professionals of Australia (PIPA) are lobbying for the regulation and licensing of property investment advice. They are trying to clean up the industry and have instigated entry level educational qualifications, ongoing professional development, a code of conduct and advisers can study to become a Qualified Property Investment Adviser (QPIA).

Unfortunately it is not compulsory for advisers to join this organisation but their member base is slowly increasing. They are building awareness of the lack of regulation in property investment advice but at this stage they have been unable to convince federal government that changes need to be made in this area. However, they are hopeful that with the recent change in government, some progress will be made.

In the meantime, if you attend a property seminar (which in many cases is a front for a property developer’s cleverly disguised hard-sell session), ask the so-called “adviser” the following questions:

  • Are you a QPIA?
  • What qualifications do you have in property or investment?
  • Can you disclose the arrangement you have with the developer of the properties that you are trying to sell?

If they can’t provide you with satisfactory answers to these questions, keep your wallet in your pocket and your hands on your purse.

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8 Comments sorted by

  1. Rex Gibbs

    Engineer/Director

    We cannot get Governments to register engineers who make decisions that can affect safety of life. Why would you ever expect property spruikers to be regulated.

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    1. Peter Koulizos

      Tutor in Property at University of South Australia

      In reply to Rex Gibbs

      I take your point Rex, However, if engineers have spent a few years studying at university and only the better engineers get employed, it helps sort out the good engineers from the bad ones. The sad fact about so called "property investment advisers" is that they don't need any qualification!

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  2. Peter West

    CEO at Property

    As a property investor most property investments are generally fairly simple: How much you pay for a property vs. rental income minus fixed costs and charges.
    On a broader philosophical level I'm against government regulation, as it never prevents crooks or incompetence, and fosters a belief that you are protected, and tends to reduce anyone's own responsibility and general level of simple self protection.
    As there has been some publicity about SMSFs investing in property, most people with their…

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    1. Peter Rowed

      ICT Consultant

      In reply to Peter West

      Can't entirely agree with you, sir. Current income and costs are easy to forecast but let's not forget the operation of depreciation to reduce tax (if you are a high income earner). Current net income from investment property is comparable to bank interest at best. Property investors look for capital gains and depreciation to defer high marginal taxable income to the future. This is a complex issue and the property investment industry targets low and middle income earners who often receive little or nor benefit from geared property investment.

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  3. Peter Maver

    Finance broker

    Storm Financial.
    Based on the above article this should have not happened but it did please explain why?

    Those of us "unqualified" to talk about financial planning, ie accountants, solicitors who had one look and knew it was a high risk play are forbidden to advise our clients as we do not hold the correct "qualifications".

    So bring on the "qualifications" so the property spriukers can get the same level of government protection as financial planners and rip the public off without fear.

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  4. CRG Essentials
    CRG Essentials is a Friend of The Conversation.

    logged in via Twitter

    Horrified that property spruikers require no educational qualifications? Company directors don't either, and their decisions and actions may affect a wider range of individuals (for good or ill) than the advice provided by a spruiker. It's not unreasonable to be alarmed by this set of circumstances and the simplistic response is to set up some form of occupational licensing.

    But the unfortunate truth is that occupational licensing is by definition anti-competitive and is generally promoted by…

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    1. Peter Koulizos

      Tutor in Property at University of South Australia

      In reply to CRG Essentials

      I'd suggest that the minimum educational qualification for a property investment adviser would be a Financial Planning qualification with a property focus. Whether it be degree or diploma level, is not of great importance. What is important is that they have some education and/or training around property and investment and maintain their skills through compulsory continuing professional development.

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