A recent article in the Sydney Morning Herald warned that some financial planners are receiving more than 3 times the standard commission payments for recommending off-the-plan residential apartments, typically as investments for self-managed super funds (SMSF’s.)
Unfortunately there is nothing new about this. For a long time some financial advisers, accountants, financial planners and mortgage brokers have been receiving up to 8 per cent of the sale price for convincing clients to buy “recommended” properties.
The problem is these commissions are not always obvious as they are included in the purchase price. Its the old story – If you are not sure who is paying, it’s you.
The SMH explains:
Financial chiefs are worried super savings are being targeted for property investments, which could over-concentrate a portfolio in a single asset. They want Canberra to tighten borrowing rules.
Commission payments of more than $40,000 are being routinely offered for recommending $600,000 two-bedroom apartments, typically as investments for SMSFs.
Well-selected properties are excellent investments and SMSFs, which now account for almost one-third of the nation’s superannuation savings, are popular and successful investment structures.
But certified financial planners, the term used for qualified and authorised advisers, are concerned some investors are using all their super as collateral for an investment property.
Developer Ivano Berlese, a director of Cielo Centro, a development of 53 apartments about 12 kilometres south-east of Brisbane, says he is ”tired” of Sydney and Melbourne financial planners, accountants and mortgage brokers asking for 8 per cent of the purchase price.[sam id=43 codes=’true’]
Mr Berlese, who says most of the apartments have been sold, says it paid the standard commission fee of 2.5 per cent recommended by Queensland’s Office of Fair Trading.
Other developers claim the recommended 2.5 per cent commission charged by agents is routinely used as the beginning of negotiations. Most other states and territories do not have comparable commission guidelines.
But advisers say they are regularly receiving emails, invitations to briefings and calls offering them big commissions for recommendations. Certified financial planners are under a legal obligation to provide independent advice and not accept commissions.
From Queensland’s Gold Coast to Melbourne’s Docklands, developers say off-the-plan purchases using limited recourse borrowing arrangements account for up to 90 per cent of sales, a four-fold increase in two years.
Investors are also being approached by ”one-stop shop” companies selling apartments, provide real estate management services, setting up self-managed super investments and organising the loans. They earn commissions and on-going management fees at each stage of their involvement.
”Risky providers share common characteristics – inflated property values, guaranteed rents, a ‘one-stop-shop’, and high commissions. If you are unsure, pay someone independent for a second opinion,” Mr Mackay says.
About 1 million funds are regulated by a mishmash of regulatory agencies that include the Australian Securities and Investments Commission (ASIC), Australian Taxation Office and real estate bodies.
Sinclair Taylor, head of SMSFs for Westpac, says overall SMSF exposure to residential property remains small, less than 5 per cent.
But superannuation chiefs, such as Pauline Vamos, chief executive of Association of Superannuation Funds of Australia, warn action needs to be taken to prevent it becoming a systemic problem.
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