Each week during spring property season, Money's team of experts will come up with strategies for getting the best result - before and after the hammer falls.
The spruikers' friend
Self-managed super funds have about $500 billion in assets out of a total superannuation asset of $1.6 trillion.
They are set to eventually grow by 12 per cent a year, thanks to the super guarantee and if you add in a little bit of inflation and compound everything then the $1.6 trillion turns into $3.70 trillion by 2020 and $13.97 trillion by 2030.
That means it'll also double by 2019, triple by 2022, quintuple by 2026 and grow 8.7 times by 2030. And that's without any growth in asset markets. If you throw in another, say, 5 per cent growth a year in the average balanced super fund, which includes investments in property, equities, fixed interest and cash, then the $1.6 trillion will have tripled by 2020 and grown by 18 times by 2030 to almost $14 trillion.
If it all goes to trend by then about half of superannuation assets will be managed by the man in the street. Imagine that: $7 trillion being managed by civilians and another $7 trillion in the hands of fund managers. If you invest in nothing else in the next 17 years, invest in financial services, because there aren't many industries that will deliver legislated growth like that.
It's going to be a fantastic decade for the industry and if China ever develops an appetite for our financial expertise, goodness only knows what the price of listed wealth managers and financial services groups will have grown to by the time you retire. Of course, this assumes that all your super returns are reinvested and compounded, which they won't be. Some people have to live.
It also assumes that no taxes are paid, which they will be, but even including that, reality will come close to fantasy when compared with other Australian industries you might be thinking of investing in. But while you breathlessly Google "listed Australian financial services stocks", a word of warning. Putting $7 trillion in the hands of innocent trusting amateurs, or as some spruikers would describe them, "chumps", "mugs", "marks", or "fools to be parted from their money", creates a massive target for a number of industries.
Luckily (luckily for you anyway) since the tech boom the financial services industry has become a lot safer. It is now highly regulated, constipated even. We have to issue statements of advice if we talk to you, we have an expensive compliance regime, we have training requirements, and ultimately the regulators have us over a barrel because we have licences to lose. No licence, no advice, no income. It doesn't matter what you deal in: equities, bonds, fixed interest, cash. They are all financial products under the Corporations Act and anyone giving advice about whether you should buy or sell them has to be licensed.
Feeding the chickens
But there is one asset class that isn't a financial product. And that's property, because the Act's definition of a financial product is a "facility through which, or through the acquisition of which, a person makes a financial investment, manages financial risk or makes non-cash payments" and when they define "facility" they describe a financial product facility as applying only to an intangible property.
In other words, while the bulk of investments you're likely to invest in in your SMSF are regulated financial products, one of the biggest asset classes isn't. And that's property, which currently accounts for 15 per cent of the assets in superannuation, 77 per cent of which is in commercial property and 23 per cent in residential. Damn! We're in the wrong industry. Those lucky, lucky property chaps have free rein. No statements of advice for them. No compliance. They don't get caught by the Financial Services Reform Act. As such even a poor old bankrupt, whatever their experience or qualifications, if they are not a licensed estate agent, can give you advice on what you should buy and sell in the property world without disclosure, and ASIC can't really touch them.
Considering property is likely to be the highest value transaction some people will ever make it is rather amazing that people being paid 10 per cent or more commission for referring a customer to property developers and builders don't have to disclose it.
Imagine what no regulation would be like for us. Advertising rates of return on equities without ASIC checking them. Charging people whatever we liked without them finding out and telling them whatever we wanted under the cover of "caveat emptor" rather than the threat of losing our licences and livelihood.
What a bonanza that would be.
So bear that in mind as you attend your free seminar, buy your apartment off the plan and invest in a US property scheme. There is such a frenzy going on in the "put your super into property" game at the moment that it is also going to attract hit-and-run, fly-by-night players that won't care about their reputations, their brands or their corporate existence and certainly not your retirement, because at the end of the play they don't intend to be around.
They'll be gone, leaving the rest of an otherwise ever more professional industry with a similar sort of headache to the one that we inherited, thanks to minority behaviour in the tech boom. Their game is to feed the chickens while they're clucking, and you lot are clucking, which makes you ripe for plucking.
We are in a golden age for unregulated property advice. It'll change; the industry wants it to change, they need it to change, as we did, but until it does, watch yourself.
Marcus Padley, Money's "Honest" Broker, is a stockbroker and the author of stock market newsletter Marcus Today. For a free trial go to marcustoday.com.au.