Residential property has failed to be fully embraced in the financial advice process due to a lack of innovation and poor regard, but the situation may improve in the drive to fee-for-service, say residential property advice experts.
Centric Wealth director of portfolio construction and management, Brett Sanders, said technological innovation was good as long as the right advice was being given. But when it came to residential property there was an “unwillingness to address certain shortcomings”, he said.
“The largest investment asset class in this country is not superannuation or managed funds, it’s housing by a significant margin,” said Sanders. “And yet, the industry ignores housing.”
Sanders said the industry needed to work harder to develop systems and advice technology to better encompass residential property, adding that the method and approach should take into account things like excess equity in the individual’s own home as well as investment properties.
“For many Australians that’s their second or third plan for retirement, and yet the industry says that if it can’t intermediate with these assets and put them on a platform, then they don’t really want to know about them because they can’t take margin,” he said.
Chief executive of Ironstone Group, Sean Preece (pictured), agreed that there were a number of restrictions on advisers advising on residential property, which included platform providers choosing not to administer property.
“Most of the newer platforms are able to report on fixed price assets but they have chosen not to or have not picked up on the demand,” he said, adding that the reason lay in the fact that property was difficult to price. “Most of the platforms have been built on a daily unit price model, but with property there is no ‘mark to market’ mechanism,” said Preece.
Preece said there was enough data available for automatic valuation models, like those provided by Residex, and he expected a greater push to include residential property on platforms.
Chris Duffield, who heads Dixon Advisory’s property division, said there would be greater interest in providing residential property advice as the industry moved to fee-for-service. He said for businesses dependent on trailing commissions it was very difficult to provide advice on an asset class where the advisers weren’t able to extract a trailing fee.
“I think the industry will be maturing in this respect as it moves towards a fee-for-service model, and advisers will be indifferent as to whether they are providing strategic advice on equities or property,” Duffield said.
Preece said other constraints on advisers included stringent licensing and a lack of expertise in this area. Duffield agreed that licensing was arduous, but not beyond an adviser’s grasp. But gaining expertise in property was a greater challenge – especially for boutique practices lacking scale.
