Conflicts could spear brokers in property advice

by Adam Smith26 Mar 2012

Brokers providing property investment advice have been warned to beware of conflicts of interest.

Forrester Cohen International chief executive John Moore has told Australian BrokerNews that brokers advising on investment property can fall prey to conflicts of interest.  Moore said referral relationships with property investment services only provide a limited range of properties, which could see brokers pushing properties which are not entirely suitable to a client’s circumstances.

“The problem has been in the past where the broker innately has an interest in getting a deal across the line,” Moore said.

Moore commented that Forrester Cohen’s platform, which he said “breaks the relationship between the adviser and developer”, helps to remove any conflict of interest questions.

“Brokers fundamentally don’t have a conflict of interests in this situation, because they don’t have any direct relationship with the developer. That allows them to provide independent advice to their clients,” he said.

The company has tipped the launch of its platform, which provides access to investment property listings, independent research and managed commission payments, into the mortgage broking sector. Forrester Cohen has hired former Advantedge national head of distribution John Finucane to oversee the push, and Moore claimed the company was currently communicating with “a lot of the larger aggregators” to roll its services out to brokers.

“The key thing is that, because we don't sell property, the goal is to ensure a compliant operation of the property investment marketplace. That's a big attractor for some of the aggregators,” he said.

Moore said providing independent property advice was “absolutely” an area of diversification brokers should pursue, arguing it provided brokers with a stronger service proposition and “stickier” customers.

“I'm sure there's a lot of frustration when clients say, 'I want to buy this investment property', and the broker is trying to find the loan, whereas there can be a much better service proposition than just finding a loan. Brokers have a very trusted relationship with their clients, and it makes sense for brokers to have that level of service in terms of property advice,” he said.

But Moore warned that brokers could find themselves facing potential compliance pitfalls by offering investment property advice which focused on pushing specific properties.

“The broker has access to a wide range of investment opportunities, and can model the outcomes of those investment opportunities to the suit the client without having any interest in selling any particular properties. Brokers will go to other companies and they will provide only the properties they have access to,” he said.

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COMMENTS

  • by Andrew 26/03/2012 10:30:10 AM

    The question about Real Estate Franchises that have in-house mortgage brokerages should also be addressed by ASIC? Surely there exists a conflict of interest?

  • by Country Broker 26/03/2012 10:33:34 AM

    Surley it is about time some one stood up and said , "there may be a conflict of interest here" !! As a broker I have always believed by having a relationship with one investment property adviser we could always be seen to have a conflict of interest - irrespective of what is said.
    I really do not want to be in this market , as I have very good relationships with some independant investment advisers whose job it is to determine what is in the best interests of their client as far an investment is concerned, I cannot do that as a FINANCE Broker it is my job to see the investor enters into an investment property LOAN that is NOT unsuitable for them , or suits their SMSF requirments requirments and legistation . Irrespective if my PI policy covers me I will not be entering into this part of the market any time soon .

  • by ozboy 26/03/2012 10:59:42 AM

    Agree with Andrew, anyone remember Henry Kay? Yet we still have not learnt our lesson. :-(