In recent weeks, several professionals have spoken to SMSF Adviser, concerned that their clients are being targeted by property spruikers who are, in particular, touting the benefits of off-the-plan purchases.
They have also expressed concern that licensed financial advisers and accountants are pushing property to their clients despite the risk posed by the investment.
Brokers, such as Thrive Investment Finance’s Samantha Bright, have seen instances of investors taking massive chances with off-the-plan properties, sometimes entering into contracts that lock them unconditionally into sales.
Verante Financial Planning’s principal and SMSF specialist Liam Shorte outlined some potentially devastating circumstances his newer clients have been faced with after visiting these “one-stop shops”.
“I have had a number of new clients, three couples, in the last 12 months that have come in with existing SMSFs. They know very little about the funds and only have one asset, which is a property, usually in regional Queensland or the Hunter Valley mining towns and small cash holdings,” Mr Shorte told SMSF Adviser.
“Most are 58-65 and had $200,-000-$250,000 in super between them. [They’ve] been told that’s not enough to retire and had been looking to try and boost their savings before retirement. It seems their accountants/advisers felt a leveraged mining town property in an SMSF was the solution.
“The people coming in to me are not high-income earners or making large contributions. They now have properties where the rents are dropping. Selling is not an option in a market where many are exiting and the fund is struggling to meet the interest payments.”
Paramount Wealth Management’s principal Wayne Leggett also weighed in, saying there is “no question” borrowing levels, including among retirees, are at all-time highs.
“There is a number of reasons for this – lower interest rates, more relaxed lending practices by banks towards older borrowers, interest only loans, lines of credit, one hundred per cent offset accounts, LRBAs and reverse mortgages/shared equity schemes are but a few,” Mr Leggett said.
However, he stressed that any concerns about excessive debt in particular need to be tempered by the other strategies the borrowers have in place.
“For example, given that it is not unreasonable to assume a long-term earnings rate of 7 per cent per annum from a typical ‘balanced’ superannuation portfolio, as long as home loan rates are sitting at around 4 per cent, it makes more sense to direct ‘spare’ funds to additional super contributions, rather than principal reductions on your home loan.”
The clients will hear what they want to hear, then when things go wrong they will look for someone to blame, invariably the accountant. We are conservative by nature and analytical by profession; we do not get overly excited by any product, We test it first. The sales/marketing people work on emotions and these could become so strong that they override the intelligence. They are so good that even the likes of my husband fell into their trap. I was left to pick up the pieces and I am angry. The Governments put so much pressure on accountants when it comes to financial advice when we were the ones protecting our clients. Where were our professional associations? They certainly did not defend us.The financial planners and the likes need to pass a pathetic tax module that is a no-brainier and then the ATO gives them a limited license; a license to mislead and destroy the assets of our clients.
I am concerned that these comments are not accurate.
Once a SMSF is involved aggrieved clients and, more importantly, their legal advisers will look to the adviser who recommended the SMSF be set up, or who otherwise advised the trustee either at the start of along the way. This can be a financial planner and it can an accountant. Or both.
I was involved in two cases last year that saw aggrieved clients recover large amounts of damages, plus their legal costs.
The fact that property is not a financial product is not relevant under the general law of negligence.
One of the issues is whether the adviser’s professional indemnity insurance covers such a negligent act or omission. It probably does not, which makes it extremely serious for any financial planner involved in these transactions.
I expect we will see many more cases like these very soon.
A wise financial planner does not get involved in off the plan apartment transactions.
Had Enough – your are wasting your time and energy. ASIC and the thieves in these property rorts are equally pathetic. When the crunch comes ASIC will hide behind their total ineptitude and the real estate spruikers will go to ground for a few years and resurface to again pillage the savings of unsuspecting average investors like these parasites have been doing for the past 50 years – check the jail terms of past gurus !!
Had enough, i had a client referred to us to set up an SMSF with a view to buying property. He had good balances, good income and good assets outside of super. We talked about our approach to property investment, locations, types of property, etc. He had been looking at a lower Nth Shore apartment but that fell thru. It was offered by one of the big real estate groups and they shifted his focus to Brisbane and the Gold Coast. He wanted to buy both in his SMSF, with one completing in 2017 and the GC ppty in 2018 ready for the Comm Games. His plan was to ‘ride the wave’ and sell the GC ppty prior to him having to settle and just take the stag gains. Total exposure would’ve been over a million bucks worth of ppty. Even with his resources it was too much for him. I posed all the ‘what if’ questions….. what if they change the LRBA rules and you cant borrow, what if banks change their guidelines, what if everyone else in the GC building has the same idea as you? You’re only seeing blue sky at present and not paying any attention to the risks. He didnt like the idea of being questioned in this way and left. He moved on from us and the big real estate group and ended up at Park Trent….. I’m sure he heard everything he wanted to hear from them.
It is happening on a significant level and ASIC don’t really care — the only way ASIC will act is if the property developer / agent / marketing consultant / accountant (unlicensed) / buyers agent / investment consultant / finance consultant or partner (I have rarely found it to be a licensed financial planner as one of the marketing lines is often that we will not charge the huge fees those evil financial planners charge) is stupid enough to overstep the mark with their wording on the webpage or marketing material. Given the majority of these firms have been selling over priced real estate to clueless people for years they are well aware of where the line is and very rarely cross it — it is the newer people who cross it and get caught by ASIC. Whilst ASIC’s response is poor it is also a self managed fund and the smucks who are running the fund needs to accept that they have made a poor decision and kiss their money good bye and stop blaming other people for their own stupidity — it is buyer beware after all.
I’m getting sick of reading these articles. How can it be that there are still people getting ‘advised’ to buy these properties? I really wish ASIC had the powers to shut down some of these operators, regardless of whether it is to purchase property through super or outside super. One that I see advertised regularly is an unlicensed individual promoting himself as “one of Australia’s leading financial educators…” ASIC, please attend some of these wealth seminars – please!
Stop blaming the property spruikers and start blaming the Advisers. If Advisers provided wholistic advice to their clients, that includes “property”, then maybe they would be able to prevent this happening. There is a solution out there also that allows clients to buy a “fraction” of a property so that they do not have to put all their eggs in one basket, nor do they have to go into debt to get their asset allocation to property.
Don’t just blame the property promoters. These individuals wouldn’t have the money to buy these properties if their mortgage broker / bank didn’t provide finance in the first place! So where’s the problem, really!
Target yes, victims no!! The sell can be as hard as they like, it takes two to tango. Why do people become victims? One word: greed. Most of these people wouldn’t buy a pair of socks without a second opinion and yet they will fall for the sales pitch of these con-men. And why would a sane person, in retirement, obtain debt, any type of debt? Maybe I have answered my own question with the use of the word “sane”. These people are insane to enter into these kinds of arrangement and there is nothing the regulator/s can do. What’s that about a fool and his money.
Great comment on the pair of socks…
As for your last line, which sums up the subject up beautifully, if I may add the words of the great Gordon Gekko, “A fool and his money are lucky enough to get together in the first place.”
There is no place in the SMSF industry for property spruikers ‘masquerading’ as supposed financial planners. I would strongly recommend that anyone looking to acquire an investment property through their SMSF meet with a reputable (i.e. a well qualified SMSF specialist) accountant or financial planner before purchasing a property – especially if advised to do so by a real estate agent, mortgage broker, property developer, property marketer, or anyone not licensed by ASIC to provide financial product advice. ASIC needs to take a closer look at the financial arrangements between certain accountants, financial planners pushing off the plan investment properties and those in the property industry. It would be a good start if ASIC designated real property as a ‘financial product’ anytime an SMSF is involved.