ASIC issues formal warning to real estate agents

by AB07 Nov 2013

ASIC has issued a formal warning to the real estate industry, saying agents recommending investors use an SMSF to invest in property must ensure they are appropriately licensed to do so.

In a letter sent to the Real Estate Institute of Australia (REIA), the regulator sets out its concerns and askes the organisation to communicate the information to its members.

ASIC’s primary concern is that, with the increased popularity of SMSFs and property investment, real estate agents may not realise they are providing financial product advice and need an AFS licence when making recommendations or statements of opinion to a person, advising them to use an SMSF to invest in property.

In the their communications with the RIEA, ASIC warns that, if a person doesn’t hold an AFS licence or is not authorised by an AFS licensee, they can only provide factual information to consumers in relation to SMSFs. Furthermore, where an AFS licence is required, agents must immediately stop offering financial service or advertising the provision of financial services until they’ve obtained an AFS licence or become a representative of an AFS licence holder.

If a person is convicted of carrying-on an unlicensed financial services business, they could be penalised with a fine of up to $34,000 or up to two years’ imprisonment – or both. A company convicted of the same crime may also be liable to penalties, including a fine of up to $170,000.

ASIC commissioner, Greg Tanzer, says ASIC’s role in relation to SMSFs is to regulate the gatekeepers – the advice providers, SMSF auditors, and providers of products and services to SMSFs.

“We want to ensure the SMSF sector remains healthy and vibrant so investors can be confident that, if they are receiving advice about investing through an SMSF, their adviser holds an Australian financial services licence and is aware of its obligations,” he says.

ASIC further adds that it’s aware some real estate agents are offering commissions or benefits to financial advisers for recommending that investors use an SMSF to purchase the agents' properties.

Such commissions or benefits may be conflicted remuneration and financial advisers may be banned from receiving them under the FOFA reforms. This is because the commissions or benefits could reasonably be expected to influence the financial product advice given to retail clients.


  • by Fat Albert 7/11/2013 11:22:01 AM

    ASIC should also be warning Real Estate agents, Brokers & Builders about referral agreements and their obligations under NCCP. The practice of sales people coercing consumers who've signed contracts to meet with "their" finance person is widespread. Getting a second opinion if the client is offered and chooses to do so is one thing, but being pressured with "we have a duty of care" or "it's part of our process" that every client meets with our finance person is a completely different matter. The motivation has nothing to do with the clients financial position, it's all to do with the potential commission the referring sales person/company receive from the broker if the deal proceeds. The sales person should also be disclosing the fact that they receive a commission if the client proceeds however it never happens. How do I know? Our clients tell us - It's a regular occurrence where they get contacted by brokers without consent once they've signed contracts with a builder or real estate agent. Consumers are unknowingly being coerced by these dubious practices which could potentially exploit them and it's time ASIC put such agreements under the spotlight so that all parties involved understand and meet their obligations of the NCCP referral guidelines.

  • by L3nder 7/11/2013 2:44:25 PM

    This is getting ridiculous. When is the borrow going to take some responsibilty for their actions? It sounds like we Australians are so docile we need the government to protect them from any decisions we make because we might believe a real estate agent really could give us sound tax advise. Maybe we make illegal any discussions about finance or investment all together by anyone not licensed by ASIC so uncle Joe does not make a "misleading statement" to his nephew at the family bbq, or mate does not discuss it at the next poker game.

  • by Broker 8/11/2013 8:18:01 AM

    According to ASIC the general public is seen as unable to make their own investment decisions because we are all so stupid

    How could we all get by in our lives without ASIC, I ponder?