ASIC may expand powers to cover SMSF property investment

ASIC is considering increasing its powers to include oversight of property investments schemes recommended to self-managed super funds ahead of its report out on property spruikers targeting this sector due out in April.

The corporate watchdog currently has no responsibility for the oversight of direct property investments, a sector that is entirely unregulated.

In November ASIC said it was undertaking limited surveillance” of financial advisers and accountants over concerns that property spruikers are encouraging investors to set up self-managed super funds purely as vehicles for "dodgy" property investments.

Speaking before a Senate estimates hearing in Canberra last week, ASIC chairman Greg Medcraft, said it was warning investors at the moment “about some of the more aggressive spruikers we are seeing in this area”.

“It would cause us a lot of concern if this became a preferred vehicle for dodgy property spruikers to get back in the market.

“We do have concerns that less reputable property spruikers [are] targeting SMSFs to encourage them to invest, perhaps inappropriately, in direct property,” he added.

The estimates hearing was attended by the Australian Financial Review, which noted that property spruikers targeting self-managed super funds operate with the least amount of oversight and take as much as a 7% commission – around $35,000 – per property sold.

Around 85% of licensed financial advisers operate under the control of bank or a regulated entity like AMP and are not allowed to advice on direct property investments, but a small but significant minority do not operate under any form of bank oversight.

According to Property Investment Professionals of Australia (PIPA) a not-for-profit group lobbying the federal government to bring property investment advice into a regulatory framework, there are more than 80,000 professionals, employed either directly or indirectly within the property investment industry, giving opinions and advice to consumers.

ASIC, in speeches and submissions in the last 12 months, has signalled that it will at the very least look to improve the information available to consumers about setting up a self-managed fund and the risks associated with different investments.

Speaking before a parliamentary committee in September ASIC, Medcraft remarked that ASIC was limited in its oversight of financial advisors and restricts regular checks to the top 20 financial advisory firms to once ever 1.7 years with much wider gaps for smaller firms.

“We are not resourced to be looking at everybody, and that is a very important message. That is why education is really important. Australians are proactive in getting educated and understanding what they should be doing,” he said.

In July last year, ASIC commissioner Peter Kell told the Association of Financial Advisers National Roadshow the key message ASIC wanted to emphasise is that SMSF structures are not suitable for all investors including the need to formulate an appropriate investment strategy and consider alternatives to setting up a self-managed super fund.