It appears some financial advisors may have begun looking towards the property market for hefty commissions, after last week’s announcement of new laws intended to avoid conflicts of interest.
Despite the new legislation to ban financial planners from receiving trail commissions, some asset classes including property fall outside the intended changes.
Louis Christopher, managing director of SQM Research, said that while most planners who deal in property are ethical, in the past week he has had calls from builders who have been contacted by some financial planners actively seeking large commissions.
“These builders have stated they were approached for commissions of up to 10% or even more – one in particular had been asked for a $40,000 commission on a $350,000 house and land package.
“We understand the dilemma these new laws place upon planners who rely on trail commissions, both for their cash flow and as a basis for the valuation of their business – and also know that some of those planners have clients who will struggle to pay an up-front fee for service.
“I have no doubt that most will find an ethical solution to this problem. But unfortunately, the ban on trail commissions is clearly tempting some unscrupulous planners to consider property sales as another possible investment vehicle for their clients with potentially high built-in commissions.
“We see this as dangerous. While there are some quality financial planners who are experts in property investment, the industry as a whole has not supported the property industry over the years to anywhere near the same degree as the securities markets. We are concerned that there are many planners who lack the proper expertise to advise their clients in this area.”
Christopher says planners should seek proper research for off-the-plan property purchases and house and land developments, in the same way advisers use research reports by their dealer groups in other asset classes.
“It is critical the property industry becomes more transparent to avoid exaggerated and over the top commissions being paid. Otherwise, the problems consumers have with less than scrupulous operators that these laws are designed to prevent may well continue in a different vein.”
SQM is an independent property research house which specialises in providing accurate property related research and data to financial institutions, property professionals, real estate investors and the media. It is owned and operated by one of the country’s leading independent property analysts, Louis Christopher.
For six years Louis was Head of research and then General Manger of Australian Property Monitors before leaving the firm to launch SQM Research and Adviser Edge Property, a leading fund manager ratings house specialising in ratings for agribusiness, structured products and property.
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