Mortgage brokers are among the professions at risk of providing unlicensed financial advice when using property investment modelling software tools.
The Property Investment Council of Australia (PICA) has warned brokers and professionals in real estate, property advisory, and accounting about inadvertently providing unlicensed financial advice when using property investment software and modelling tools.
Tools and apps that model property and portfolio performance of trusts, companies, or self-managed super funds (SMSFs) are of particular concern to PICA.
Under the Corporations Act 2001, interests in trusts, companies, and SMSFs are classified as financial products, meaning any advice on acquiring or managing properties through these structures is considered regulated financial advice.
While noting that modelling a purchase in an individual’s own name does not fall under the same regulatory scope, PICA warned that professionals using tools and apps to model trusts, companies, or SMSFs without an Australian Financial Services Licence (AFSL) or appropriate authorisation may be exposing themselves to legal risk.
PICA also stated that brokers need to be aware that tools and apps do not remove liability.
The industry body added that soft or implied recommendations are still regarded as financial advice if they influence a client’s decision making, and even ‘general advice’ is regulated and requires appropriate licensing when discussing trusts, companies, and SMSFs.
Ben Kingsley, PICA chair, emphasised the warning was protective rather than punitive, intending to help brokers and other related professionals operate within their remit.
“Many professionals may be unaware that using these software modelling tools and apps in relation to property owned by clients in trusts, companies or SMSF’s means they are giving financial product advice, under the Corporations Act, which is against the law,” he said.
“Unless you are a financial planner, using any tools that analyse or track the current or future performance of property in these entities for a client, crosses a clear legal boundary, even where the intent is education or illustration.”
More awareness needed
Speaking to The Adviser, Kingsley said more could be done to teach professionals in the lending and property space about what constitutes providing financial advice.
“PICA has recently written to the peak association in the mortgage, property investment and buyers agency sectors to bring this to their attention and we've recommended they allocate some professional development time and space to bring their members up to speed,” he said.
“I know the Property Investment Professionals of Australia are going to be running a series of breakfast meetings across Australia and this will be one of the main topics of discussion as part of these events, which is a good thing to get the message out there.”
Kingsley says part of the rise in the use of these tools is brokers wishing to help clients.
“Brokers love helping clients, in this case investor clients with the lending needs, and if they are buying in their individual names, there isn't a problem,” he says.
“But the majority of these software tools are popping up and being promoted to industry professionals, rather than direct to consumer direct – that's their B2B model. The issue is simple, if they offer the option to model and manage trust, xompany or SMSF property with their software or app, that’s when the problem lives.
“It's clear some of these software developers might also need to update themselves of the Corporations Act, so they understand which professionals are allowed to use these tools and stop promoting them to mortgage brokers.”
Serious penalties
Professionals who fall foul of the regulator leave themselves open to serious penalties under section 911A of the Corporations Act, according to PICA.
Operating what constitutes a financial services business without a licence can attract severe penalties, including up to five years’ imprisonment for individuals and civil penalties of up to $1.57 million per contravention.
Meanwhile, corporations face civil penalties of up to $15.65 million per contravention.
PICA also added that the Australian Securities and Investments Commission (ASIC) is broadening its focus, not only examining the conduct of end advisers, but also software platform providers, marketers, lead generators, referrers, and other industry participants who enable or facilitate advice pathways.
Marketing claims in focus
Individuals promoting investment results or client outcomes to attract business are also at risk of breaching ASIC’s misleading and deceptive conduct provisions, according to PICA.
The industry body said ASIC is particularly concerned when claims imply repeatable returns, minimal risk, or guaranteed outcomes, noting that marketing is judged on its overall impression, not just disclaimers.
PICA also said promoters are responsible for testimonials and comments once they are aware of them, and sharing personal success stories can be considered a recommendation, potentially triggering financial advice obligations.
“As the regulatory environment evolves, professionals across property (Buyers Agents), lending (Mortgage Brokers) and accounting need clarity around where their role starts and ends and where licensed financial advice begins,” Kingsley added.
“Greater awareness now will reduce legal, reputational and consumer harm in the future, and these software businesses should also refrain from promoting these tools to professionals who aren’t licensed to use them or give advice in this space.”
‘It’s not just what you say – it’s how you influence’
Last year, PICA sent a letter to several industry associations and professional bodies warning of a rise in unlicensed financial advice to property investors.
The nine-page letter primarily focused on buyer’s agents, but also highlighted a growing number of brokers and accountants using “speculative marketing,” particularly on social media, which may expose them to conflicts of interest and potentially unlicensed financial advice.
Speaking to The Adviser about the letter, Kingsley said PICA had evidence of activities where the brokers – and buyer’s agents – are encouraging people to set up these trusts,” either out of ignorance of the relevant laws or “in the pursuit of personal gain”.
“It’s not just what you say – it’s how you influence,” he said.
“Encouraging someone to set up a trust to buy property is not just tax or legal structuring advice. It’s product investment advice. It’s regulated. And unlicensed operators are putting themselves and consumers at serious risk.”
[Related: Lenders should review trust lending exposure: PICA]
