Christine Lusher (left) and John Cachia

The government should better regulate property transactions to prevent consumers falling prey to high pressure phone-based property spruiking operations, members of the advice profession have argued ahead of the federal election.

Two high-profile advisers describe to Professional Planner how developers are leveraging Australia’s property-focused culture with high pressure sales tactics to get people into overpriced, off the plan property.

Lush Wealth financial adviser Christine Lusher says she’s seen many situations over the years of people being led into a risky strategy to open a self-managed super fund (SMSF) and put all their super into one property investment. 

She says as property is so “unregulated”, people can “present themselves as a financial adviser when, in reality, they have no qualifications”. 

“It’s always been around, property developers selling properties, and I don’t know if they’re an adviser or they’re more just a salesperson,” Lusher says. 

Property isn’t considered a financial product which means the same regulations that would apply to financial advisers doesn’t apply to property advice.

“You don’t have to be licensed [in property] but you do have all the accountants and so on in the background setting up the SMSF and getting fees,” Lusher says. 

“And often the salesperson has a nice big sales incentive or commission for selling the property, which is overpriced, off the plan and then clients can be in a position where all of their superannuation…ends up being with this one company and in one property and they’re paying a lot of fees and that property has no capital growth.” 

Thriving Wealth founder and Financial Advice Association Australia’s 2024 financial adviser of the year John Cachia says while mortgage brokers have a best interest dutythere is an overall lack of regulation in the property transaction space. 

Unless the government steps in to regulate property transactions similar to like a financial instrument, there’s not much,” Cachia says. 

“What would be good is the government can kind of step in and say listen, if you want to give advice on property transactions, in the next three years, we’re going to build a program to maybe get it to a level where the person giving the transaction has an obligation and has recourse if that is wrong.” 

The ire of AFCA 

One of the most common complaints received by the Australian Financial Complaints Authority is lack of diversification with SMSFs, particularly those focused on buying direct property. 

A spokesperson for AFCA says the key issues with inappropriate advice in relation to SMSFs are recommendations are twofold. 

The first is that recommendations to establish and maintain an SMSF when a client has a low super balance are often disproportionate to the balance and mean it is more difficult for clients to achieve growth. 

Secondly, the lack of diversification of investments, especially in relation to direct property investment or investment concentrated in a specific managed investment scheme, is more likely to occur when client has a low superannuation balance.   

Compounding this issue is if the client also does not have the cashflow to make additional superannuation contributions to support the property investment if for example the property is not tenanted for a period or requires significant maintenance,” the spokesperson says. 

If clients lack financial tolerance for the strategy they may be forced to sell, potentially crystallising losses. 

ASIC has sounded the alarm on the pipeline of telemarketers using high pressure tactics to get potential clients to see an adviser with links to a conflicted business model, but it falls outside the regulator’s power if there isn’t a financial product. 

‘No one should really be taking advice from an ad’ 

The issue of being sold “a dream” was an area of concern for both Cachia and Lusher. Property spruikers rely on heavy marketing via social media platforms such as Facebook and Instagram to attract unsuspecting clients. 

“In reality, no one should really be taking advice from an ad,” Lusher says.  

“This person [might] look like they’re independent and they’re a property expert…whatever your needs are, they’ll end up pushing you through to the property development that they’re selling.” 

Lusher says she had one client who had purchased a property this way, albeit outside of super, which never increased in value. 

“He sat there hoping for about 10 years this property would get back the original purchase price, but it never did, he ended up having to withdraw his super to pay out the loan,” Lusher says. 

She says she had another client last who ended up getting divorced, but her husband had convinced her to both of their money into one property. 

“It was a disaster, it never went up,” Lusher says. 

“Now she’s left with significantly less super than what she should have because she was in this property for a few years and they had to sell out, take the loss and move on.” 

Cachia says he has found not only are there a lot of inexperienced people helping people make decisions to purchase property, they’re also not prioritising the client’s best interest. 

Cachia says some property salespeople twist words and call themselves a “finance adviser”, a barely discernible wording difference to financial adviser. 

The element of ego in deciding to open an SMSF for property investment was noted by both Cachia and Lusher as a way to manipulate potential clients. 

“The sales angle is certainly looking at people’s ego – it’s like you can do better yourself at managing your own SMSF,” Lusher says. 

“Australians love property, so it’s very attractive for people to think if I put my money into a property, it’s obviously going to perform better than my super fund, which is obviously quite often not true.” 

Realistically, an individual without an extensive amount of financial literacy and knowledge is not going to do better than a super fund. Lusher questions if people setting up an SMSF “have [the] knowledge and skills to do their own investments”. 

Cachia agrees ego definitely plays a role sometimes and says “there’s so many biases that you have as an individual with your own money that is incredible. If it be confirmation bias, if it be overconfidence bias”. 

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