Warning issued over rise in unlicensed advice

The nine-page letter largely focuses on buyer’s agents, but also suggests that there is a growing number of mortgage brokers and accountants who appear to be harnessing “speculative marketing”, particularly on social media, and are opening themselves up to conflicted conduct and, potentially, unlicensed financial advice.

While direct property is not a licensed investment product under the Corporations Act 2001, PICA said it was “genuinely concerned” about the growing number of investors who are investing via entities or structures, such as trusts or self-managed super funds (SMSFs), particularly for residential property, but are not receiving appropriate advice.

Among the issues flagged, PICA is concerned that brokers may be:

• Using unsubstantiated “get rich quick” messaging and tax-driven investment claims in their marketing. It flagged concern with the “hyper-scaling” in the number of social media posts, podcasts, and books that selectively quote “above-average returns using advantageous calculation methods”, such as return-on-invested capital, which it said “amplifies” returns.

• Encouraging clients to buy property through trusts or SMSFs as a way to fast-track portfolios and bypass APRA’s loan servicing constraints designed to restrict such multiple purchases.

• Entering into conflicted arrangements with buyer’s agents and accountants, including undisclosed referral fees or commissions.

Other concerns raised from buyer’s agents and accountants included advertising tax minimisation schemes as being portrayed as more effective than home ownership.

The letter read: “What’s happening here is some buyer’s agents, accountants and mortgage brokers are proactively giving financial product advice to encourage unsophisticated investors to set up these types of investment vehicles with the promise that it’s the only way they will be able to build a property portfolio fast, get rich and retire sooner.”

PICA added that they should also be mindful that even if someone is not giving a recommendation, statements could be reasonably regarded as ‘soft advice’ in some instances. This could include if the person/business “uses leading questions or nudges clients toward a product or structure” or “facilitates or arranges for a product to be acquired in a way that influences the decision to invest”.

‘It’s not just what you say – it’s how you influence’

Speaking about the letter, PICA chair Ben Kingsley (who is also the managing director of brokerage and financial advisory firm Empower Wealth) commented: “We’ve got evidence of these types 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.

“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.”

The PICA chair said there were also a growing number of operators who “are marketing quick profits through residential property, using tactics that overstretch current credit lending rules or outright breaches of the law – particularly when it comes to investment advice around recommending Trust Entities or setting up an SMSFs without proper licensing”.

“These types of behaviours are deeply concerning,” Kingsley said.

He added that brokers should also avoid facilitating a client connection to one of their own referral partners in order to arrange an SMSF loan.

“[The issue occurs] if they’re not asking them [the property investor] to talk to their existing financial planner or accountant. It’s if they want them to talk to their specific alliance financial planner,” he said.

“They’re building these alliances, and they’re referring work into accountants and financial planners who will assist with completing the compliance work that allows all of them, all three parties, to benefit financially from the transaction.”

The body warned that these practices expose brokers and other advisers to property investors to serious regulatory penalties under ASIC and consumer law – including jail time and millions of dollars in fines – which could damage industry credibility and contribute to property speculation that risks overinflating property prices.

As such, PICA is urging the broker associations (and other relevant associations in the property industry) to remind members to:

• Act in their clients’ best interests, not their own self-interest.

• Avoid misleading or “get rich quick” marketing and provide balanced communication that includes risks as well as benefits.

• Not give unlicensed financial advice (e.g. recommending trusts, SMSFs, or gearing strategies).

• Fully disclose all fees, commissions, referral payments, or other financial incentives.

• Be transparent about potential conflicts of interest.

• Emphasise that property is a long-term investment, not a short-term speculative play.

• Ensure clients understand the risks and high costs involved with property investing.

The letter concluded: “If the trend we are seeing becomes ‘mainstream’ from more operators, it will be impossible for governments or regulators to ignore the eventual projected impacts and outcomes, and they will act. And when they do, we run the very real risk that they will overregulate and overtax, causing even more pain for all of us involved.

“Put simply, the commoditisation of residential property stock, whereby it becomes a short-term tradable asset, will have significant negative economic and social consequences for Australia.

“By informing your association about the feedback we are getting from the market, we hope to be able to curb this behaviour and ensure you help remove those operators doing the wrong thing.”

[Related: Rentvesting appeal rises as first home buyers feel affordability squeeze]