It seems to be going from bad to worse. This week we have had the big four banks submitting massive documents to the Royal Commission into banks for misconduct outlining all the wrong doings they have done to customers over the past number of years. This is in relation to financial and wealth advice where the banks have steered customers into products that are more favourable to the bank than the customer.
The big four banks are currently in the process of now selling their wealth management businesses as a result of this conflict of interest and also due to technology and regulatory changes in the market place.
So if you have some money, and you can’t trust the bank's financial planners, ‘property is always good’, so who do I talk to?
Beware of the advertisements, buy a property for the cost of a cup of coffee per day. Spruikers, can be hard to spot as they come in various guises and are now very professional in appearance with silver tongues. "Are you interested in saving tax while paying your house off faster?" Naturally, we are going to answer yes, which leads to the next question: "What time are you free next week for one of our experts to show you how it works?"
How do you recognise a Spruiker?
This is difficult, many offer free investment seminars teaching you how to invest and build a property portfolio, however so do many reputable businesses. Some promise you that property doubles every ten years, well it might. Others talk about buying with a Self Managed Super Fund, again maybe this could work.
So if the strategies the spruiker offers are acceptable, what’s the problem? How can I get stung? It comes down to asking some smart questions, so all the cards are on the table.
As a buyer, even a real estate agent is not acting in your best interests as they are getting paid by the vendor and have a legal duty to them. Purchasers must therefore vend for themselves in a world full of minefields and alluring gold mines.
Try some of these questions when you meet anyone providing you with investment advice;
Who is paying you if I buy this property?... which leads to ‘how much’? The system is inherently wrong at this stage with developers and agents getting up to 10% of the property value as commissions. Do you want to pay that sort of commission on your purchase? Which leads to the next question. Who is the developer and what is their track record?
Check out the details of the developer, google them, and then call them and arrange a meeting. The developer just wants to sell the property, so you might be able to get a better deal by going direct and not having to pay the high commission to the spruiker. Nobody minds paying an agent 1% to 2%, but 10% is ridiculous.
Is the mortgage broker, financial planner, accountant (or whoever is recommended) independent or are the shareholders or directors linked? Also ask if the referral company receives any commission for the referral. This is because Property Spruikers are normally part of a network of related and associated entities that draw benefits from the sale of properties in different ways.
If you are to purchase, then ensure you get an independent valuer. This is not the bank valuer but one that you engage and pay, regardless of the bank or the broker. This is the only way to get a real opinion of value, and usually spruikers are selling properties that are over valued.
Therefore the onus is on property buyers to ignore the spruikers and do their own research, both in terms of advisors and also the properties.