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Financial advisers and some brokers are being offered potentially dodgy incentives to put their clients in SMSF property investments, with promises they can double already generous fees and commissions by recommending property companies, according to the Australian Financial Review (AFR) and Financial Rescue managing director, Neil Kendall.
The AFR reports that investors are also being encouraged to roll over their ‘old’ super assets, such as shares and fixed income, into cash deposits for investment properties, which are incorrectly described as long-term better performers than equities.
While FoFA reforms came into effect on July 1 making it illegal for financial advisers to accept commissions, Kendall tells Australian Broker that large cash incentives are potentially influencing recommendations made by both advisers and mortgage brokers.
“[The incentives come] from people who are providing a package of self-managed super fund administration and an associated property and borrowing in that package,” says Kendall, who refers to such package deals as ‘McSuper funds’.
“These are not tailored to individuals’ 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.”
He adds that many of these packages are leveraged. Rules were introduced a number of years ago allowing super funds to borrow money and this, he believes, is where the issue occurs.
“There are significant challenges around borrowing money in a super fund.This is a pre-packaged solution that doesn’t take into account client circumstances, it’s an expensive solution, it encourages people with relatively low assets to use it only in their super fund - to go out and borrow money that they may not be able to afford. Interest rates are at their lowest in history, so what you might be able to afford now, in three years may be completely unaffordable.”
He says a major problem lies in the fact that property investment is still a grey area, largely outside the jurisdiction of major regulators.
“They fall outside the general regulation that applies to mortgage brokers and financial planners and certainly something needs to be done to tighten that up. I would suspect this hasn’t been thought through fully at this point in time.”
