This is a big no-no.
The Corporations Act 2001 (Cth) requires financial advisers to research each financial product recommended to a client. All advice must be based on that research.
Like all AFSLs, Dover compiles and maintains an approved products list. Dover advisers are limited to recommending only those financial products on Dover’s approved product list (“APL”). This is a condition of the Dover Adviser agreement. It is not a Corporations Act or ASIC requirement. Accordingly, any advice to a client regarding a product that is not on the approved products list is a breach of the agreement between the adviser and Dover.
Because it is an internal Dover process, the APL can be varied at the Adviser’s request, and Dover frequently does this when requested to do so by Advisers. This is providing, of course, that the requested product is a properly governed and maintained one and will be suited to the client or clients for whom it is intended.
As a result, there is really no excuse for advisers recommending a client invest in something that is not on the APL. Nevertheless, we do see such recommendations being made from time to time. Interestingly, one of the most common recommendations we see – and one which we are unlikely ever to approve – is a recommendation for an off-the-plan apartment. This will be particularly the case where the adviser is also seeking to receive a commission for an off-the-plan apartment. This then becomes even more unlikely where the mooted purchaser is a SMSF using gearing.
The history of such investments is not a good one. The risk is simply too great. At law, property is referred to as real property, and it is this tangible aspect that is a particular feature of property. When the apartment is bought off the plan, it does not yet exist, which creates an enormous risk for the client. As with all things, gearing magnifies this risk substantially.
There is an abundance of investment property that already exists and is sold on a market with many buyers and sellers. As a result, it is difficult to see how buying an apartment that does not yet exist and which is being sold in a market with few buyers and sellers could ever be in a client’s best interests.
Accordingly, we are unlikely ever to allow our advisers to recommend that clients buy an apartment off the plan.