The Australian Financial Review has raised concerns that advisers are being offered incentives to put their clients in SMSF property investments.
The article published on Friday said that advisers would be able to “double already generous fees and commissions from product providers” by also recommending property companies.
As everyone knows, commissions are now banned, but the AFR says that this ban does not apply to commissions from lenders.
Neil Kendall, managing director of Financial Rescue, a financial advisory complaints management service, is not sure that this is legal.
“I would suspect this hasn’t been thought through fully... This is only relatively new legislation but I’m not sure that financial advisers would legally be able to receive commission for those sorts of recommendations,” he said.
Kendall says that advisers should be "horrified" and encourages they go forward with extreme caution. He is concerned that the property investment surge in DIY super is creating a pre-packaged ‘McSuper’ fund that doesn’t take into account client circumstances.
“These are a pre-packaged solution that is rolled out to anybody who is prepared to take it…financial planners are required to provide advice that’s appropriate to the client – not to take packages and sell them to clients.”
For example, SuperShift is a company that arranges the loan and insurance, does the paperwork, puts together the legal structure and offers on-going administrative and legal service.
According to the AFR, an adviser can more than double “the commission” by referring their client to SuperShift Property, which is an affiliated property-related company also known as Investment One – Property Solutions.
“Using a $428,000 property with a $300,000 loan as an example, Sydney-based SuperShift pays advisers $5725 for recommending a client.”
FPA general manager for policy and conduct Dante De Gori says the confusion is that FoFA does not cover real estate, so technically, if a financial planner is a licensed real estate agent, then they can recommend property and still receive commissions, but that it is trying to draw a long bow.
“The reality is, 99% of advisers stay away from property developers because they’re bad news,” says De Gori.
He says that the initial job of advisers and accountants is to advise on setting up the SMSF, and the bigger concern is around those who are spruiking property and using it as a catalyst to get an SMSF.
“I think the target needs to be that protection for consumers about what the real intent is for that individual when promoting property for self-managed super, and those advisers that get mixed into this stuff, they need to be very careful about what they’re doing.
De Gori says that “technically speaking, FoFA and the Corporations Act cannot do anything about real estate…it could never have been targeted, so the implication that there’s a gap in FoFA because of this, is fundamentally wrong.”
You can read the full AFR article here.