Online calculators and ASIC attracting widespread scrutiny

Property buyers and investors will be very aware of online calculators that can be used to quickly provide an estimate on rental yield, borrowing capacity figure and deposit needed, from property websites, government sites and service providers themselves.

Recently, there has been an argument around super fund calculators and comments made around ASIC’s granting of relief in relation to generic super fund calculators 10 years ago, prompted by former-ASIC employee James Wheeldon.

ASIC is set to make a response to Wheeldon’s allegations in a week’s time before the Senate Economics References committee.

In an online statement they noted that calculators are a common tool used by consumers to, in this case, get an indication of the money they will have on retirement.

The Sydney Morning Herald reported Wheeldon as saying that the Corporations Act prior to 2005 required online super calculators to have a ‘reasonable basis’ for the outputs they produced.

"Starting in 2004, IFSA aggressively lobbied ASIC to issue a Class Order that would amend the Corporations Act so that IFSA's members could offer online calculators that did not comply with the Act's "reasonable basis for advice" standard. This would allow IFSA members to use online calculators as marketing tools, rather than as reasonable educational tools and would also relieve IFSA members from the obligation to include fees in their online calculators,” he was quoted as saying.

Essentially, it is being claimed that the IFSA lobbied so that they wouldn’t need to present their fees on the calculators.

This debate and the truth will come out, and in the meantime there are more serious conversations to be had, however it prompts an important lesson for property investors who regularly use calculators online.

Firstly, are you aware of what they are calculating, and how they come up with the solution they provide you?

Secondly, what do you intend to do with the information?

Thirdly, who else has access to the information you input into a calculator?

And, lastly, are you aware of any hidden costs and fees? How will you check for them?

While some calculators are far simpler than others, such as a rental yield calculator that usually required the input of two figures and a fairly straightforward calculation, others can ask for multiple fields of entry and quickly having you lose track. This doesn’t necessarily mean they’re not useful, or worthwhile, but it does mean you want to understand the inner workings.

We have our own calculators on Property Observer, more of which will be brought to you in coming weeks, and we can honestly say that we do not collect your information and that we endeavour to consider all of the costs and complications involved. This is a tricky thing to do without the calculations becoming unwieldy and confusing. We’re also of the opinion that calculators can be immensely useful for investors and property buyers, despite only providing rough estimates that are as valuable as the information you put in.

However, if the calculators do not take into account all the necessary information, if they leave out necessary fees, costs and important factors, then they are useless for providing true comparisons.

Just as the very straight forward rental yield calculator can be questionable in its usefulness, without the input of strata fees and similar, when comparing properties, any calculator that doesn’t take into account fees and other costs is similarly questionable.

Investors – keep your eyes peeled and do your due diligence.

We will be explaining how different calculations are made in a number of articles. For instance, here is a quick 'How to' on rental yield. If you would like to know how other calculations are made, contact jduke@propertyobserver.com.au.