November 7, 2019 by Dymphna

Is your broker ripping you off?

This is how to think about our unusual economy.

One of the things that makes my blood boil about the property market is that there is a lot of bad advice out there.

… and a lot of shonky operators.

The ABC was doing an exposé the other day, and it’s enough to make you kick a hole in the wall in frustration. The basic version is that people’s mortgage brokers and accountants were taking kick-backs for sending people into high-pressure sales ‘seminars’.

(As someone who actually runs seminars with a view to educating people, not fleecing them, this really makes my blood boil!)

Even though residential real estate has generally been a strong investment for people over the past few decades as Australia went through its biggest ever property boom, plenty of people have lost money, especially buying off-the-plan or new developments.

But what is truly disturbing about the cases of Matt and Peter — and thousands of others like them — is not that they bought new properties and lost money, nor even necessarily the ‘investment’ seminars that convinced them to do so.

Rather, it’s how they came to be at those seminars.

When Matt told his then-accountant about a $30,000 inheritance he’d just received, the financial professional sensed an opportunity.

“He invited me to an event — I guess you could say networking, but it was a property event — to possibly spend that inheritance on a brick-and-mortar house,” he says.

In Peter’s case, it was his then-mortgage broker.

“My business got really, really busy and because I was so busy I had some cash that I wanted to invest,” he tells The Money.

“My partner at the time also was pregnant and we were going to have a child and we thought, ‘Oh we better do something quickly to invest some money we had,’ and time was very limited.

“Our mortgage broker/financial adviser at the same time reached out and said: ‘There’s a seminar coming up, would you like to come along?’”

Peter later learned from some of the documentation around his purchase that this broker had received $4,000 in exchange for that referral. Matt isn’t sure what his accountant got out of the property sales, but is quite certain he received some payment.

… Independent financial planner Bruce Brammall, based in Melbourne, says he’s constantly receiving offers from developers and the property ‘research and investment’ firms they sometimes use as sales agents.

“Way too often, large amounts of money [are] paid to hangers-on in the industry or people such as financial advisers or accountants or mortgage brokers to assist in finding clients to purchase the development properties,” he observes.

“They can be up to 7, 8, even 10 per cent of the value of the property.”

… Lawyer Michael Catchpoole — a partner at major firm Corrs, Chambers, Westgarth — says the scale of these payments can mean consumers get conflicted advice that isn’t in their best interests.

“More often than not, these seminars are free because they’re effectively promotional,” he says.

“Where it becomes murkier is where those commissions are sufficiently large that there’s a sell-at-any-cost culture associated with them.

“Or, alternatively, where there’s confusion or expectation in the mind of the purchasers that the property seminar provider is acting in their interests or is an honest broker.”

This is such a horrible scam. Pretend to be offering people independent advice, without telling them you’ll be getting a fat commission if they fall for the high-pressure sales techniques.

It’s one of the reasons I’ve never sold a property at my events.

Not one.

Not one, ever.

I’ve got a system – a system that works and has runs on the board. You either buy the system or you don’t. It’s up to you.

But if you do, then I don’t make a single thing from anything you decide to do with your money afterwards.

… which is how it should be.

So if you’re a potential investor, beware. There’s a lot of people offering you ‘advice’ that is nothing of the sort.

And if someone offers to hook you up with someone, ask them if they’ll be getting a kick back of some sort.

The answer might surprise you.