Discrepancies in real estate portfolios

Financial Planning is a heavily Government (ASIC) regulated business providing individually personalised advice to clients including protecting and growing their wealth. As a financial planner it appears extremely inequitable to see far bigger transactions occur with far fewer compliance hurdles or disclosures such as direct property investing. A real estate agent does not have to comply with anywhere near the levels of ‘Know your Client’ and is a transaction-based sale rather than a strategy based advice.

The Financial Services Reform Act (FSRA) 2001 does not apply to real estate agents, as real estate is not considered a ‘financial product’. The financial planning industry will always question ‘why the discrepancy?’ Other than the asset, what is the difference between a $500,000 share portfolio and a $500,000 investment property?

Common sense would dictate the need to heavily regulate a ‘financial product’ such as property. This becomes more urgent when property businesses market themselves as residential property experts and make claims to owning 20 houses in 10 years, flying people to Queensland to invest in their ‘sure thing’ property development; pushing US properties and espousing the ‘tremendous’ value to be had over there, although one can only wonder why the Americans themselves haven’t cottoned on to the ‘tremendous’ value in their own back yard.

This is further compounded by the popularity of self-managed super funds (SMSFs) and the ability SMSFs now have to borrow funds to make property purchases.

There is no doubt that property can be a great investment, but protection for consumers should be paramount. Legislation should be introduced to the real estate industry, as it has to the finance industry, to gain more suitable qualifications, ongoing training and monitoring to force a holistic consideration of the individual clients needs before the property is recommended.

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