Alarmingly, there is no governance whatsoever surrounding the property investment industry

Alarmingly, there is no governance whatsoever surrounding the property investment industry
Alarmingly, there is no governance whatsoever surrounding the property investment industry

The property investment industry is growing rapidly, with well in excess of $500 billion invested by small investors in property in this country every year. To think that this industry operates completely without any kind of governance is beyond belief.

You can start helping to change this by writing to [email protected] and asking him why he refuses to do anything about regulation for the industry. When we had a Liberal government, I had made some great progress with Treasury in not only designing potential regulation, but having the government commit to implementing this regulation. The minister of the day, Nick Sherry, had made a public commitment to this pathway on one of my shows, and he had guaranteed me that the property industry would be regulated as part of ‘tranche two’ of the Credit Reform. The green paper referenced the property investment advice industry, and also committed to including it in the Credit Reform Legislation.

Once the white paper was in existence and accepted by parliament, this commitment had curiously disappeared from the agenda. Next, we saw a change of government and suddenly any intention to even consider such regulation disappeared. I have continuously tried to gain an audience with Financial Services Minister Bill Shorten to outline the problem, and he steadfastly refuses to acknowledge my existence, let alone the issue itself.

To give you an idea of the extent of the issue, here are some facts:

The property investment industry is completely without regulation. This means that anyone can wake up one day, decide he wants to be a property investment adviser, and set up shop in his own business, or working for someone else, giving you advice about property investing. There is no licence required, no education or training needed, and no one is supervising the activities of these people to ensure that you are being protected.

Some of these people provide advice only, while others, in an outrageous conflict of interest, actually sell you the property, too. In some cases, the company may have a real estate licence, however these licences simply provide ground rules about how property is sold and still leaves the entire issue of the advice surrounding these sales without governance. I recently reviewed the website of one of these spruikers who has a real estate licence, and the claim was that, while this person “technically” acts for the vendor according to the provisions of his or her licence, in fact the spruiker acts for you, the buyer, by giving you advice. If that’s not a conflict of interest, and most likely also a breach of their real estate licence, then I am not sure what is.

ASIC provides no supervision, and the Australian Financial Services reform does not recognise the activities of these property investment advice companies because a property investment is not recognised as a financial instrument. ASIC makes claims that it has the issue covered, since new rules allow the organisation to investigate “spruikers” who cross the line into actual financial advice, but this is a weak argument provided by a government department that simply cannot bear the thought of adding responsibility to an already stretched agenda. In truth, spruikers who do cross this line make up less than 1% of the players in the property investment advice industry, leaving 99% of them free to operate completely without rules, regulation or any kind of supervision whatsoever. 

If that frightens you, then consider this: property investment advisers also operate without any kind of professional indemnity insurance to cover their “advising” activities. Those with policies have significant exclusions, which limit their cover to activities which fall under legislative governance, such as finance broking. The reason for this is that the underwriters refuse to provide coverage for activities that are unregulated, and rightly so. What this means for you is that, if you suffer any kind of financial loss as a result of poor property investing advice, you have no capacity to recover that financial loss, as the adviser most likely won’t have the funds to compensate you!

And so, in case you’re not seeing the full picture here, this is how it looks:

If you are seeking assistance or advice from a “professional” property investment advice company or person to help you make what is most likely going to be the largest investment you will ever make, the company you approach will have no licence, most likely no education or training, and is not supervised by any government department or licensing body. They are not required to disclose to you any commissions they may receive from any sales made to you (and these can be as high as $40,000 per property sold), they can freely give you advice to invest or disinvest in any property or product that suits them, and, if it all goes pear- shaped, you have absolutely no regulatory framework under which to seek recompense, and no likelihood of recovering your losses from PI insurance.

If this alarms you as much as it does me, let’s get together and take action! We need a groundswell of support. We need letters to the government and support from the media. We need outrage by the very people who are not being protected to force the government into taking real action which once and for all creates the regulation within which these companies and advisers must operate. And, we need it now!

(note: some advisers have taken the trouble to become members of the not-for-profit industry association, PIPA and complete a diploma-level course. For now you can go a small way toward protecting yourself by asking questions about those you go to for assistance, and making sure that at the very least they are members of an industry association AND have completed adequate educational courses.)

Margaret Lomas is a best-selling author and writes and hosts the popular Property Success With Margaret Lomas and heads up the panel on Your Money, Your Call, both on Sky News. She is the founder of Destiny 

 

 

 


Margaret Lomas

Margaret Lomas

Margaret Lomas is a best-selling author and writes and hosts the popular Property Success With Margaret Lomas and Your Money, Your Call, both on Sky News. She is the founder of Destiny.

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