Property advice not all safe as houses
Last year, it promised to give investors a better handle on the dangers when it established a taskforce to examine high-risk self-managed superannuation fund issues.
Although the Tax Office regulates DIY funds, ASIC is responsible for those giving advice on the funds. And while the taskforce's report on advice being given to investors starting up their own funds, released last week, gives some clues, it leaves a lot of questions unanswered.
Most of the advice given to those running self-managed superannuation funds (SMSFs) was found to be "adequate", although about a quarter of it was rated "poor". And much of this poor guidance concerned borrowing to invest in property inside a DIY fund. This high level of poor advice seems to conflict with the regulator's comment in the report SMSFs: Improving the Quality of Advice Given to Investors, that it found only "pockets of poor advice".
The regulator reviewed the files of accountants, financial planners and others, such as specialist super administrators who advise on DIY funds, to better assess the risks in the DIY-funds sector.
ASIC reviewed 100 investor files relating to the establishment of a SMSF.
About one-third of the cases included advice to start a DIY fund and borrow to invest in real estate inside the fund. Indeed, much of the poor advice related to property.
ASIC and the Tax Office have been warning of the dangers of property spruikers targeting DIY funds for some time. Restrictions around borrowing to invest in real estate through a SMSF have been relaxed in recent years. This has led to the emergence of property spruikers on the internet touting the tax advantages of holding property inside superannuation's low-tax environment.
When he released the report, ASIC chief Peter Kell said the commission was particularly concerned about the rise in aggressive advertisements pushing property purchases through SMSFs. "We do not want to see SMSFs become the vehicle of choice for property spruikers," he said. "Where we see examples of unlicensed SMSF advice, or misleading marketing, we will be taking regulatory action."
The report does not name who recommended gearing into property that ASIC considered to be poor advice. It could be that ASIC is seeing only a small part of the bigger picture. That is because much of the advertising on the internet for "advice" on starting a DIY fund and borrowing to invest in property through the fund appears to be coming from the spruikers - who are probably unregulated.
The problem for ASIC is that even where real estate operatives are working in the regulated part of the industry, they are mainly regulated by the states and territories. The government and the regulator are going to have to work out who can advise on property inside a DIY fund.
Frequently Asked Questions about this Article…
ASIC warned investors not to rush into setting up a self-managed superannuation fund (SMSF), highlighting the dangers of following aggressive online marketing and property spruikers that target DIY super funds.
ASIC reviewed 100 investor files and found most advice was rated ‘adequate’ but about a quarter was rated ‘poor’. The report noted problems especially around advice to borrow to invest in property through a DIY fund, while the regulator described the overall picture as having only “pockets of poor advice.”
In the ASIC review about one-third of the cases included advice to start an SMSF and borrow to invest in real estate inside the fund, and much of the poor-quality advice the regulator flagged related to such property gearing strategies.
The Australian Taxation Office regulates the operation of DIY super funds themselves, while the Australian Securities and Investments Commission (ASIC) is responsible for regulating the people and firms that give advice about starting and running SMSFs.
Since borrowing rules for SMSFs were relaxed in recent years, property spruikers have promoted the tax advantages of holding property in super through online advertising. ASIC and the Tax Office warn this can lead investors to unregulated or misleading advice and risky gearing strategies inside an SMSF.
ASIC chief Peter Kell said the commission is concerned about aggressive advertising pushing property purchases through SMSFs and that where it finds examples of unlicensed advice or misleading marketing it will take regulatory action.
The article notes a regulatory gap: many real estate operatives who advise on property are primarily regulated by state and territory bodies, making it harder for ASIC to police all advice about buying property inside DIY super funds.
Everyday investors should be cautious of aggressive online promotions and property spruikers touting SMSF property gearing, seek properly regulated advice, and be aware that ASIC found a significant proportion of advice about borrowing to buy property inside SMSFs was poor.
Call 1300 880 160
Start a chat
Schedule a call
