By Gerald Tay (guest contributor)
Recently, I chanced upon the blog of a local property agent. She wrote an article dated November 2013 that had the title “Learn How You Can Own 2 Condos with $0 cash of your own!”
In her blog, she shared “investment wisdom” on how home owners can monetise the locked-up profits from their current home which has appreciated greatly, and subsequently purchase two properties to attain financial freedom.
A “low risk” way to invest?
She advertised herself as a property agent and posted several other articles and videos on how to invest in property in a “low risk” way.
The agent has a video in her blog which showcases her as an “expert” investment speaker and trainer, sharing her four-step investment system to a large group of audiences in what looks like an expensive ballroom. And she claims on her video, “I’d like to show you an effective system to generate a consistent and passive source of income. A system that is not only powerful but so simple that even a child knows how to manage it.”
Under MAS Regulations: “A person who induces a consumer to invest in a certain investment product under the guise of running a training course will generally be regarded as providing financial advisory services. This is especially so if the person receives compensation, directly or indirectly, as a result of a decision made by a consumer to buy or sell an investment product based on the contents of the course.”
Under CEA Regulations: “Publishing false or misleading advertisement is a breach of the Code of Ethics and Professional Client Care, whereby disciplinary action can be taken against the estate agents or salespersons concerned.”
Her sales pitch, “A system that is not only powerful but so simple that even a child knows how to manage it” and “Learn How You Can Own 2 Condos with $0 cash of your own!” reminded me of those many unregulated investment “gurus” who stoop to obnoxious and dishonest sales and marketing tricks, pedalling meaningless investment advice to the unwary.
Property “education” by unlicensed gurus
Obvious to say, to boost her own sales, it seems the property agent is one among many purportedly offering investment advice disguised as “property education” to the public via various seminars and free talks. You might have also seen them eagerly appearing on national media lately to offer their so-called “investment” expertise.
The key difference between investment gurus and property agents who claim they can help average folks attain some sort of financial freedom is, the former is highly unregulated by any legal institutions, while the latter is supposedly heavily regulated and licensed by the CEA (Council for Estate Agencies).
The Financial Advisers Act (FAA) regulates both companies and individuals that provide advice on investment products to consumers. Administered by the Monetary Authority of Singapore (MAS), the FAA sets common standards for those who give investment advice by introducing important initiatives to protect the consumer’s interest.
Individuals acting for a licensed FA (Financial Advisor) must hold a representative’s licence. Representatives of licensed FAs (Financial Advisors) and exempt FAs must meet the same minimum entry and examination requirements, and similar business conduct rules.
In addition, it is a regulatory requirement for every licensed representative to go through a “Know-Your-Client” process to find out more about each client’s investment objectives, financial situation and personal needs before recommending any investment products.
Buying for own stay or investment?
How many times have you heard an agent asked you or a prospective client, “Are you buying for own stay or investment?” Whenever I hear this overly-used statement from agents, I cringe.
I would frown and ask, “Why does it matter to you in any case?”
Agent: “So I can help you make better decisions on your purchase.”
Me: “The buying decision lies entirely with me, not you, and as a sales representative, you’re only required to answer questions that buyers have such as regarding location and seller, and not try to offer other advice beyond your area of expertise.”
Most of them would go dumb-founded after hearing what I said. I don’t blame them. They are taught and trained by their estate agency’s leaders. From a sales point of view, asking statements like this help the agents plan their angle of sales “attack”.
Property agents should stick to their job scope
Property agents should ethically stick within their main job scope and never go beyond their area of expertise, which includes:
- Assisting the client to negotiate price
- Give advice on the buying and selling process
- Deal with the seller and buyer
- Handle the nitty-gritty paper and administration work for the client
- Source properties within the client’s given requirements
- And nothing more!
The prerogative in making any buying decisions lies entirely with the buyer, never on the advice of a property agent.
The “Know-Your-Client” process as required by the financial industry is obviously non-existent in the real estate industry. Unlike buying insurance or shares, a property requires a buyer to saddle on huge long-term debt with a large initial cash outlay.
And if CEA has deemed the “Know-Your-Client” financial process as unnecessary, untrained and unqualified property salespeople and their estate agencies should not be allowed to promote properties as would-be investments to entice buyers with “sexy” terminology used by the regulated financial industry such as:
- Future capital appreciation
- Wealth creation
- Investment value
- Return on investment
- Portfolio structuring
- Even volunteering to help clients calculate a property’s potential investment value (and more often than not providing inaccurate facts)
Are property agents allowed to act as investment consultants?
While licensed money lenders are not allowed to run estate agencies or practise as salespersons under CEA regulations, are property agents or their estate agencies allowed to act as financial and investment “consultants” without any form of licensing?
If property agents and their estate agencies are not under the FAA act, why are they allowed to provide any sort of financial and investment advice to property buyers in the first place?
How closely does the CEA monitor the practises of the estate agencies and their sales representatives to protect consumer’s interests?
There’s an easily arguable grey line between offering “investment” advice and “education” advice – the latter is often misused.
Does CEA have a tight and extremely specific framework like FAA and MAS on how a salesperson can conduct business?
“Learn How You Can Own 2 Condos with $0 cash of your own!”can be a serious misrepresentation from a property agent to an unwary consumer. Does the CEA agree with such practices by agents to entice buyers?
Buying a property is not a regulated investment scheme
Unlike REITS, buying a property is not a regulated investment scheme protected under MAS regulations. It means if you choose to participate in a property investment (or scheme) that is not regulated by the MAS, you will not have the protection afforded under the regulatory framework administered by MAS, particularly if the operators are based overseas. If you have a complaint against an unregulated entity, you will also not be able to approach the Financial Industry Disputes Resolution Centre (FIDReC) for assistance.
When consumers put their money into such unregulated schemes, they do so at their own risk. In the local real estate industry, consumers do not have privilege protection. All stakeholders in the property market, including the developers, agents, mortgagees and lawyers have their organizations to represent their interests. But what about the buyers, investors and owners of private properties?
Examples of the organizations for different groups include:
- Property Agents – Institute of Estate Agents (IEA)
- Developers – REDAS (Real Estate Developers Association Singapore)
- Conveyancing Lawyers – The Law Society of Singapore
- Mortgage Service Brokers – MFAS (Mortgage and Financial Association Singapore)
Salespersons are required to act in the best interest of their clients. There is a clear conflict of interest for estate agents to be involved in offering any sort of financial or investment advice not within their job scope, as clearly many of them are highly unqualified to do so, both in terms of training as well as real life investment experience. As such, they may not be able to fulfil their obligation to their clients.
Black sheep should be removed
There are some good honest and hardworking agents in the industry and I’ve the pleasure of working with some of them. However, like in any industry, business integrity and reputation is the key to trust in any business dealings. Black sheep who fail in delivering on their moral obligations should be removed.
Hopefully, the CEA will proceed to issue a more complete guide for their agents and estate agencies in the area of providing financial and investment advice to prospective clients.
I also hope the CEA will give the general public a reasonable response on the key points I’ve made above.
I welcome all feedback and opinions – you can email me firstname.lastname@example.org.
By guest contributor Gerald Tay, who is the founder and coach at CREI Academy Group Pte Ltd, an organization dedicated to empowering retail property investors with smarter investing philosophy and strategies. He is a full-time investor with over 13 years of solid experience in building his wealth through Property Investment and is financially wealthy today.