Lessons learnt from Moneywise and ASP

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Advisers need to be better educated when it comes to property, if they want to avoid enforcement action from ASIC.

ASIC took enforcement action against two separate advice firms last month – Moneywise and Anne Street Partners – regarding SMSF advice. Property Investment Association of Australia (PIAA) advisory board member Rosemary Johnston says that advisers hoping to avoid similar action need to educate themselves before stepping into the property realm.

Johnston says that advisers are increasingly looking towards property as an additional source of revenue, as they try to keep up with FoFA and the transition to fee for service. However, she says that they’re not getting the right information, and are not asking the right questions.

Johnston was familiar with Moneywise and ASP, and says that lack of property knowledge was their tripping point.

“Because we know some of the groups involved and we know what’s going on with property, we can certainly see it relates to advice, but it also relates to their desire to be in property…and their misunderstanding of what’s going on.

“We can just see this continuing issue where financial planners want to be involved in this area but just don’t understand how to navigate,” she said.

Johnston says that when dealing with property, the three key things that advisers need to manage are:

  1. Conflict of interest
  2. Client’s best interest
  3. Who has the relationship with the vendor’s agent

Even when setting up referral relationships, Johnston says that advisers are struggling, because there is a possible conflict of interest if they work with vendors’ agents.

“Vendor’s agents don’t give advice and don’t have PI insurance for this activity,” she said. “There should be no referrals to Vendor’s Agents of clients needing advice services.”

When referring to a Buyer’s agent, she says advisers need to consider the following questions:

  1. Buyers Agents don’t give advice under real estate law, but they may offer additional services that include advice.  Do they have PI for the advice that is given?
  2. If there is no PI insurance how do you know there is a sound business process behind the advice that has been given?
  3. If there is no PI insurance and a complaint arises how are you going to protect your reputation?

“They keep asking real estate agents ‘have you got PI?’ and they say yes, but they’ve only got it for real estate, not for advice,” said Johnston.

“They’re struggling with what they need to do here. Their professional associations don’t do property and so there’s just a lack in the marketplace.”