The blurring line between real estate agents and SMSF advice

A representative from the Real Estate Institute of Australia (REIA) recently spoke before the Parliamentary Joint Committee Inquiry into the Financial Services Industry and highlighted a number of concerns for real estate agents and consumers in the SMSF space.

REIA chief executive officer Amanda Lynch, in the latest issue of the REIA’s newsletter, touched on these issues in further detail.

“Our involvement with this inquiry was at the request of the committee, although the REIA has been pro-actively working to address community and industry concerns about the blurring lines between real estate agents and the provision of financial advice,” explained Lynch.

It seems that one of the major concerns is the blurring of the line between the role of a real estate agent and the role of an SMSF financial planning adviser.

This concern is not just strictly related to real estate agents. Just recently, Park Trent Properties, who run seminars and education programs for property investors and promote property, have been targeted by ASIC for their SMSF promotions. ASIC explains that they are effectively carrying on an unlicensed financial services business.

Lynch contests that there is an issue, but that it’s limited within the real estate agent profession.

“While we recognise that for the most part, few if any, real estate agents are involved in the promotion of SMSFs, some of our members report that there is an increasing demand from accountants who managed SMSFs on behalf of trustees as well as vertically integrated organisations that approach agents seeking suitable properties,” she said.

She explains that the vast majority of real estate agents do not make estimates on rental returns or capital gain on properties.

However, those that do were noted to utilise statistics publicly available through the ABS, Bendigo and Adelaide Banks and the REIA’s own Real Estate Market Facts and Housing Affordability Report.

“Importantly, no payment is sought for this advice as it forms a basic part of being a real estate agent,” she said.

Lynch also recognised that there are “clusters of agents in certain areas with the dual role of also being a financial planner”.

Currently, a deterrent to this is the high cost of personal indemnity insurance to offer financial advice.

Instead, she also warned that financial advisers are approaching the real estate industry themselves – and not in the most scrupulous way possible. Her warning is towards those who use fast-track course methods to obtain qualifications to become a real estate agent.

They require no exams, are completely solely online and have a “very suspicious 100% success rate” she warns.

The REIA is seeking the de-registration of courses that offer a no course, no examination full success rate.

“These courses are not at all regarded by established real estate agents,” she said.

SMSF trustees have previously been warned not to take advice from real estate agents by ASIC commissioner Greg Tanzer.

“ASIC is aware that there has been a sharp rise in promoters recommending that investors either set up or use an existing SMSF to invest in property,” Tanzer said.

“These promoters may not be complying with the law.”

In response to these statements earlier this year, Graeme Colley, director of technical and professional standards at the SMSF Professionals’ Association of Australia, said that real estate agents might not actually know that providing this advice without a licence is illegal.