Property investors must be cautious when seeking advice

The Home Buyer and Property Investor Show was in Melbourne last week. It’s one of those events where many free tickets are handed out. The show is advertised with the motto of being “dedicated to educating home buyers and property investors of all levels” and having attended many shows during its six-year run, I can assure all home buyers or investors, if you don’t come out more confused than when you headed in, something’s amiss!

“Now is a great time to buy” – runs the advertisement – and boasts a host of “independent” advice from “trusted, reliable experts”. Let me be the first to say, as with other organisations, “trusted and reliable experts” do exist within the property industry. However, filtering them out from the mishmash of stands and the 80 or so speaking events is not an easy task for any armchair property investor.

“Independent” is a funny term. To the layman, it hints at someone who is “free of bias” – a qualification not many would be able to claim. Every professional has met with influences that sway judgement and learned scepticism to some degree or another. However at a corporate level, seeing the term independent would cause one to assume the provider has no relationships or affiliations that would direct its advice against the best interests of its customers – and these qualities aren’t always easy to identify.

The financial industry has struggled with the term “independent” for quite some time. In 2010 the IFAAA (Independent Financial Advisers Association of Australia) was established to try to filter out those who could truly claim to have no hidden associations.

Their website identifies the following criteria as being “independent”, without which “low-quality advice (would be) more likely”:

• “Do not have any ownership links or affiliations with product manufacturers;
• Do not receive commissions or incentive payments from product manufacturers; and
• Do not charge asset-based fees.”

How much policing goes into checking the ongoing performance of each “independent” advisor on the database is unclear, however, at the very least, it sums up what customers would expect when confronted with the word.

Section 923 of the Corporations Act lists its own restrictions when using the terms “independent, impartial or unbiased”.  However, these are broadly limited to receipt of commissions (unless they are fully disclosed and rebated to the client) receipt of benefits, or the need to achieve various provider volumes when referring business.

The Home Buyer and Property Investor Show has no such gold standard. Obviously, most of the speakers and traders pay to promote their wares, and a good proportion are openly associated with various providers and manufacturers.

Within the show itself, you’ll discover a broad array of developers, mortgage brokers, property “experts”, and so forth, each promoting its own vested method to achieve that pot of retirement gold.

By the time you exit the show, you’ll have been lectured to invest in the USA, negatively gear a portfolio, positively gear a portfolio, build, develop, purchase in mining towns, purchase within five kilometres of capital cities and so forth, from exhibitors affiliated with providers and in receipt of commissions from many different offshoots.

To inexperienced ears, every piece of well-delivered advice can seem persuading, hence the need to do plenty of homework before commitment. However, even taking into account the modest number of exhibitors who do fall under the definition of “independent”, I have a problem with using the term to promote the show – it’s simply incorrect and arguably misleading.