Adding a property investment advice service to your brokerage can do wonders for business, but it's an unregulated world.
Offering property investment advice to your brokerage can do you wonders, but it's an unregulated and sometimes murky world. MPA catches up with Property Investment Professionals of Australia (PIPA) chair, and mortgage broker, Ben Kingsley for his tips on how to offer property investment advice in a successful and ethical manner.
MPA: Can brokers successfully diversify into property investment advice?
Ben Kingsley: I’m probably proof of that in my own business. I’m the chair of the Property Investment Professionals of Australia, and I run a business called Empower Wealth in Melbourne. Back in 2007 I undertook, over two years, the QPIA [Qualified Property Investment Adviser] course. Because I knew that’s what I wanted to specialise in. So I was a broker who then went into the advisory space for property investment. And, coming up to eight years later, or thereabouts, I’ve got a successful business with 17 staff that offers brokering, buyer’s agency, property investment advice and financial planning services. So there’s definitely an opportunity there for those who are serious about property investing and the market opportunities that exist in the property investment space.
From the brokerage point of view, the clients are very sticky. They usually, if successful, will replicate. So they won’t just stop at one. One property is not going to give them the passive income that they’re looking for in retirement. So usually it’s going to correlate to a couple of additional purchases. So effectively they’re going to increase the size of their loan book and then, over time, those debts will be erased. But in the earlier stages, they’re excellent.
MPA: Could a one-man brokerage offer investment advice and broking?
BK: They go hand in glove in the sense that a lot of property investors do require finance. Getting a loan and getting the structure right is a big part of the property investment advice work. And certainly looking at clients’ cash flows and their monetary situation is where I think brokers have an advantage over accountants, and even financial planners for that matter, because they do a lot of good work in modelling out cash flows. There’s a real opportunity then to be a standalone and to put those two skills together.
MPA: Is it important to partner with a financial planner?
BK: It’s not essential. Obviously I would say in any good defence mitigation or minimisation strategy you should ensure that you protect your income. And so having personal insurances is fundamental in our business. But for others they might see it as an opportunity to refer or introduce to other parties in that sense.
But in terms of understanding property investing, there’s not a lot of direct correlation between how property performs compared to maybe the share market, or derivatives or bonds and all of that type of what we call 'licensed investment products' perform. It’s a completely different skillset. You’re focusing more on human interest and human behaviour, because the marketplace is controlled by owner-occupiers as opposed to investors.
MPA: Given that property investment advice is an unregulated area at the moment, how can brokers formalise their property knowledge and set themselves up as a property investment adviser?
BK: There is a course that the association provides, which is a Qualified Property Investment Adviser course – QPIA. That course has aligned itself with best practice in regards to providing statements of advice to clients – not only on the property side, but most importantly understanding the client’s objectives, their goals, the appropriateness of making that investment and the debt levels.
So as a broker you’ve got a responsible lending obligation, but as a property investment adviser you’re also responsible for looking at holistically their current situation and making the appropriate property investment strategy around what fits the needs of the client as opposed to a one size fits all approach. The industry, being unregulated, is littered with people claiming they’re so called experts in one type of strategy over another, when really they’re product selling.
MPA: How long does it take to complete the course?
BK: There are six modules as part of the QPIA course. You could usually do one model a semester part time. So it took me two years to complete my six modules and then the exam work that goes with that. We’ve had some professionals who have fast tracked themselves by trying to do it full time and do module after module straight up. There are some online exams as well as some written submission work that they have to present for assessment. But usually if someone was very focused on it they could get it done within 12 months.
And the other important message there for brokers is there’s also recognised prior learning. One module is on finance and lending, and that module obviously would be exempt for anyone that’s a diploma-level mortgage broker.
MPA: Are there any other issues brokers should be aware of?
BK: They’ve got to be understanding if they’re wearing two hats to make sure that they’re working in the best interests of the client, which should be paramount anyway. But if there are any conflicts, i.e. they’ve got a relationship with a developer or a builder and they’re receiving commissions rather than charging fee for service, under the PIPA code of conduct they should be disclosing those. That’s the main thing they need to do is, if there are any conflicts, they should be practising full disclosure. This is best practice in our view.
MPA: Can brokers successfully diversify into property investment advice?
Ben Kingsley: I’m probably proof of that in my own business. I’m the chair of the Property Investment Professionals of Australia, and I run a business called Empower Wealth in Melbourne. Back in 2007 I undertook, over two years, the QPIA [Qualified Property Investment Adviser] course. Because I knew that’s what I wanted to specialise in. So I was a broker who then went into the advisory space for property investment. And, coming up to eight years later, or thereabouts, I’ve got a successful business with 17 staff that offers brokering, buyer’s agency, property investment advice and financial planning services. So there’s definitely an opportunity there for those who are serious about property investing and the market opportunities that exist in the property investment space.
From the brokerage point of view, the clients are very sticky. They usually, if successful, will replicate. So they won’t just stop at one. One property is not going to give them the passive income that they’re looking for in retirement. So usually it’s going to correlate to a couple of additional purchases. So effectively they’re going to increase the size of their loan book and then, over time, those debts will be erased. But in the earlier stages, they’re excellent.
MPA: Could a one-man brokerage offer investment advice and broking?
BK: They go hand in glove in the sense that a lot of property investors do require finance. Getting a loan and getting the structure right is a big part of the property investment advice work. And certainly looking at clients’ cash flows and their monetary situation is where I think brokers have an advantage over accountants, and even financial planners for that matter, because they do a lot of good work in modelling out cash flows. There’s a real opportunity then to be a standalone and to put those two skills together.
MPA: Is it important to partner with a financial planner?
BK: It’s not essential. Obviously I would say in any good defence mitigation or minimisation strategy you should ensure that you protect your income. And so having personal insurances is fundamental in our business. But for others they might see it as an opportunity to refer or introduce to other parties in that sense.
But in terms of understanding property investing, there’s not a lot of direct correlation between how property performs compared to maybe the share market, or derivatives or bonds and all of that type of what we call 'licensed investment products' perform. It’s a completely different skillset. You’re focusing more on human interest and human behaviour, because the marketplace is controlled by owner-occupiers as opposed to investors.
MPA: Given that property investment advice is an unregulated area at the moment, how can brokers formalise their property knowledge and set themselves up as a property investment adviser?
BK: There is a course that the association provides, which is a Qualified Property Investment Adviser course – QPIA. That course has aligned itself with best practice in regards to providing statements of advice to clients – not only on the property side, but most importantly understanding the client’s objectives, their goals, the appropriateness of making that investment and the debt levels.
So as a broker you’ve got a responsible lending obligation, but as a property investment adviser you’re also responsible for looking at holistically their current situation and making the appropriate property investment strategy around what fits the needs of the client as opposed to a one size fits all approach. The industry, being unregulated, is littered with people claiming they’re so called experts in one type of strategy over another, when really they’re product selling.
MPA: How long does it take to complete the course?
BK: There are six modules as part of the QPIA course. You could usually do one model a semester part time. So it took me two years to complete my six modules and then the exam work that goes with that. We’ve had some professionals who have fast tracked themselves by trying to do it full time and do module after module straight up. There are some online exams as well as some written submission work that they have to present for assessment. But usually if someone was very focused on it they could get it done within 12 months.
And the other important message there for brokers is there’s also recognised prior learning. One module is on finance and lending, and that module obviously would be exempt for anyone that’s a diploma-level mortgage broker.
MPA: Are there any other issues brokers should be aware of?
BK: They’ve got to be understanding if they’re wearing two hats to make sure that they’re working in the best interests of the client, which should be paramount anyway. But if there are any conflicts, i.e. they’ve got a relationship with a developer or a builder and they’re receiving commissions rather than charging fee for service, under the PIPA code of conduct they should be disclosing those. That’s the main thing they need to do is, if there are any conflicts, they should be practising full disclosure. This is best practice in our view.
