The overselling of SMSF properties is not confined to brokers or advisers but is happening “across the board” where a conflict of interest exists, Waterfall Financial Planning director Dacian Moses told SMSF Adviser.
“I don’t think it’s a case of ‘those nasty brokers are selling loans – they shouldn’t’, or ‘those nasty planners’ or ‘those nasty property spruikers’,” Mr Moses said.
“It’s across the board where that conflict exists: where the person initiating the process is going to make a great deal of money out of that deal going ahead,” he said. “Follow the money – who’s making the money out of this deal?”
The overselling of property investments to SMSF trustees is fundamentally an issue resulting from the lack of regulation for property investment advice, Mr Moses said.
“I constantly get spruiking emails from property stock warehouses that will say, ‘Here are another four properties in Gladstone ready to go with SMSF lends!’ or ‘Here’s a [property] in Northern NSW, just perfect for limited recourse borrowing!’” he said.
“The sales pitch isn’t so much about the properties being great investments for the trustee of an SMSF; the inducement is ‘how can I get some free commissions?’”
Mr Moses fears there will be many SMSF investors who buy overpriced assets but who will then be forced to sell at a loss.
“I think that a lot of people’s financial security in retirement will be adversely affected, if not wiped out,” he said.
“It won’t be the first time and, unfortunately, it won’t be the last.”
I am pretty sure the trustee decides in the end the asset make up of their portfolio.
It is clear to me that the debate around direct property in SMSFs has lost all proportion. While I am on the side of a more selectively use of SMSFs, some of the comments being made by some people are simply to get a headline.
Stuart, do some research, your comments are not only ill informed, they are just wrong.
Property is a loss making investment from time to time, it comes with the territory of investing in any asset class.
Todd, your comments re risk insurance is beyond ridiculous.
Adversely affected Yes. Wiped out Not unless the properties are still geared at retirement.
Nevertheless, I wonder why one would negatively gear a property with a tax rate of 15%, notwithstanding CGT freedom. Remember, if the sole income in retirement is ABP, MTR is low so non super CGT not a serious problem.
Trustees of a “Grown up” fund would never contemplate buying a property without an independent valuation. If an SMSF adopted the same policy, many problems would be avoided.
This scenario plated out in the Cairns market over 10 years ago. Wiped out several stupid clients who did not seek independent advice. Invested $700,000 and sold at $230,000. But some people are greedy and some are stupid and some or conned. As for the property people I shan’t say a word, except do you trust them?
Negative gearing has been around for a while, so why not boost retirement savings without breaching caps or exhausting cashflows. Trustees can make their own decisions, they’re growns ups you know.
Geeze Todd: “insurance can pay ridiculous amounts of commissions to planners, so what happens? Planners continually over insure trustees to the point where they have no funds for retirement”.
Where has this happened “continually”? Do you have any facts to back up this allegation?
You are suggesting that insurance is wiping out ALL the savings of trustees and leaves them destitute in retirement.
With all due respect, that is unmitigated rubbish!
OOps I want to agree with Kylie as well I don’t take commissions for any advice or fund placements all ‘Fee for Service’ the ones getting commission are the RE agents selling the property!!
Sad but true. I too see these spruiking emails as well as radio ads etc. One accounting practice in their radio ad says nothing about requiring an SMSF it simply says if you qualify you can buy property in your super! This will continue until there is some regulation over the sale of property to super funds.
No it will not be the first time and it will not be the last. These sales people have always been around to pick on the gullible and always will be – why are you looking to only protect those few that have an SMSF? Would you prefer the salesmen persuade them to invest 110% personally for the “Tax Break”? I would suggest that the majority of people who fall for these type of pitches are generally not the type to have an SMSF anyway. There are alwsys a few who will get caught out and investing is a risk. The most regulated area of the economy, our investment advisers, have been caught out with negative returns for several years in very recent history. It did not stop them recommending loss making investments. How do you think that over-regulating a type of investment is going to stop losses occurring? Oh, hang on, we do not have much input to this category nor earn much from it do we – it is so unfair, we have to be regulated, why shouldn’t they??? sound familiar?
Yes. The clients should instead invest in listed property trusts (or mortgage trusts) that their advisors sell them (and then the advisors make massive commissions including upfront and ongoing). There have been some great ones…
This guy seems to be predicting an almighty fall in the property market.
The comment wiped out is untrue as a property will never be worth zero dollars. I educate my clients on the fact that retirement is not about what your assets are worth but rather what income they are receiving from those assets. As a far as the article goes if you want to see sharks and money sniffers look at the research an intelligent accountant conducted in 2010 on industry funds. The collusion and corruption is astounding.
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Now I agree that the investment property world should be regulated, but is this guy should look in his own backyard, insurance can pay ridiculous amounts of commissions to planners, so what happens? Planners continually over insure trustees to the point where they have no funds for retirement. Now why would peoples financial security be wiped out??? Yes SMSF loans require 20% deposit but the yields can be quite attractive and if they need the cash they can always sell???
Correction – Advice from Brett, average’s from Adrian.
Ivan and Adrian. It is not that”property is bad” or “never have property in an SMSF”. Nor is any measure relating to “average” in any way useful.
It is simply that we have an unregulated market with lots of shysters, sharks and money sniffers.
Ignorant trustees are at high risk.
Not with Adrian from the sounds of it if advice is balanced across a broad portfolio and risks managed including insurance.
Perhaps not with Ivan if you are conservative and well experienced.
It is not the principle that is wrong it is the delivery methods and schemes of the money sniffers, property is just the current fashion trend for these guys.
Article is 100% correct.
Mr Moses has raised a good point (although fancy accusing some operators of doing something which is commission driven!!) but I think he doesn’t give enough credit to SMSF trustees who are in the main quite astute and will make the property investment on its merits. After all they are playing with their own money and will take much more care than someone who is not.
Seems every single update we’re hearing the same drum being beaten
There is more than 1/2 trillion in SMSFs ($1.75T in the whole industry) – is Mr Moses suggesting that they don’t put anything in direct property but rather invest in listed property trusts & lose money that way like they did lose more than 80% in 2008 & 2009?? Suggest that you look at the number of middlemen in transactions involving listed property trusts & then compare to investing in direct property.
Not quite sure that I agree with the ‘wipe out’ heading. Have a look at the level of property & borrowings in the recent ATO SMSF statistics.
Results from my PhD suggest that SMSF trustees have proven over the years that they are no mugs – net returns are as good or better than the “experts” and costs are generally lower. The general asset allocations are pretty much in the “normal” range that you would expect. note that the borrowing levels are quite low compared to what individuals, companies and governments have. Would you like our national and household debt was at 5%?
I would have about 50 LRBA structures involving property in my client base.
Only 1 of these I would say falls into the trustee being enticed by the developer.
When a financial planner starts talking about the perils of property investment, I become sceptical.
Are they trying to sell a message so clients will invest with them so they can obtain their “fee for service” asset fee?
As with ANY investment, it needs to be looked at on its merits.
Olive trees anyone?
Another SMSF property ‘doomsday’ scenario.
Could ‘wipe out’ SMSF saving according to an ‘industry professional.
What unsubstantiated rubbish.
I have property invested personally and through my SMSF, over the last 15 years I have done very well based on a diversified property portfolio and a focus on capital growth and income yield. Over the next 30 years, I plan to be just as successful through my SMSF to secure MY retirement. Its MY retirement, SMSF is about choice and control
Again, 3% of total of $520 billion in SMSF is represented by LRBA.
A balanced portfolio of investments includes property for most people as they feel they understand it, and the dynamics of the property market have been so favourable. There is lots of money on the table and those with vested interests are targeting the uneducated, especially in regional areas. Dacian you must see a lot of things that would cause distress.
Property Investment Advice is a fledgling sector seeking to be another arm of financial planning with property as the asset class. It seeks to tailor the advice, and the selection of the property, to the client’s needs.
Hitting the nail on the head, article is 100% correct.
Totally agree – that is why being a true Fee for Service Adviser is so important. A cost benefit analysis should always be completed for a client as the first step in considering a LRBA. If the benefits don’t well and truly outweigh the costs in the first few years after the property purchase, then it shouldn’t proceed.
I see 2 issues with this article. Firstly, it matters not whether the investment is within or outside a SMSF, the same applies. The use of the term SMSF is only a scare tactic for effect.
Secondly, any investor who does not have a balanced investment portfolio has a higher risk.
Certainly there are problems out there, but we need to address the situation as a whole.
Ticket clipping !!!
I have spent too long in the industry that I became disillusioned by all the people who want to clip a fee out of wraps, property,investments, pseudo advice, trees, cars, holiday locations, developments, etc etc.
I prefer to keep it simple. No stress, then.