Advisers need to build property expertise

Residential property values may be a hot topic for Australia’s home buyers, but most financial planners remain lukewarm on suggestions that residential property should become a mainstream asset class.

While most financial planners acknowledge property should be an integral part of any well-balanced portfolio, only a very few are inclined towards getting involved in direct residential property, and this probably explains why it remains a low priority in terms of adviser education.

A robust view of why direct residential property is not part of most financial advisers’ offerings is given by Money Managers principal andFinancial Planning Association(FPA) stalwart, Kevin Bailey, when he says, “direct property is a sub-standard asset class dominated by amateurs”.

Bailey justifies this statement by claiming the recent boom in residential property values is an exception and that over longer time-frames the risk return equations simply don’t stack up.

However, Bailey’s view runs counter to that of the principal of Ark Finance, Maurice Goldberg, who has built a group of companies around the belief that direct residential property is a much overlooked and under-estimated asset class.

Goldberg, whose group includes Ark, mortgage broking outfit, Liquidity Finance, and real estate firm, Pulse Property, trained as an architect but moved into financial planning around 14 years ago.

He says he was always told that residential property was a bad asset class but, with a knowledge of property borne of his experience as an architect, he knew that contention was wrong.

Goldberg says it was his desire to move further into financial advising associated with direct property that prompted his group to obtain its own dealer’s licence.

He acknowledges the lack of education of direct residential property is one of the drivers for his group.

“There’s little encouragement to get involved in residential property within the existing educational regime for financial planners, in fact, it barely rates a one-paragraph mention,” Goldberg says.

“That means a core part of our business is going out and supporting planners and accountants and we do that under our dealer’s licence providing property advice and recommendations on the same basis we would provide financial advice and recommendations,” he says.

What both Goldberg and Bailey agree on is that the media has been a primary driver for people investing in residential property with little or no reference to financial advisers.

Goldberg says clients are more educated today than five or 10 years ago and they have learned more from television than from financial advisers.

However, Bailey says the media’s inordinate focus on residential property with television programs such asThe Block, has given rise to a massive flight of liquidity into real estate and the creation of a debt bubble.

Someone who has an ability to look at the property investment question from both sides of the equation is former FPA chief executive David Butcher, who is in the throes of establishing a mortgage advisory business.

Butcher says property should be a part of any balanced portfolio, but where residential property is concerned, investors must be made aware of the cycles, the returns and the tax implications.

However, where education and knowledge of direct residential property is concerned, he says the lack of interest by financial advisers is largely because the financial planning industry originated in the insurance and banking sectors rather than property.

“The bottom line is that property is a valid investment, but people need to understand that the returns aren’t always as good as they’ve been in recent years,” Butcher says.

Bailey also acknowledges that at least some of the negativity towards direct property is owed to the origins of the financial planning industry and a perception that property is a non-core competency.

However, he also says part of the reluctance by planners to get involved in direct property is their memory of what happened during previous property booms, particularly the demise of the Harts group of companies.

Bailey says a number of planners who sought to surf off the last residential property boom got their fingers burned and that, objectively, it was property that proved the downfall of Harts.

He says while property does indeed have a place in any well-balanced portfolio, he is more disposed towards listed property trusts.