10 steps to capitalising on property advice

[ November 21, 2012 ]

A financial planner not advising on property is like a doctor not advising on the right side of the body.

Most clients have the majority of their wealth in property.

This is not a bad thing: well-located property has historically been a good investment. It’s fair to say that without the forced savings of a long-term mortgage loan and the long-term capital appreciation of the typical home, many clients would not accumulate much wealth at all.

What do you say when your clients express an interest in property? When they want to buy business premises? When they want to upsize? When they want to downsize? When they want to extend? When they want a new kitchen?

Do you provide the service your client wants, and help your client achieve their financial plans? Or do you decline and say, “I am sorry I cannot advise on property. You need to speak to someone else.”

A financial planner not advising on property is like a doctor not advising on the right side of the body. The result is poor advice. The financial planner has only half the picture, and only half the business opportunities.

To be a true adviser you must advise your clients on property, and be able to guide your clients through this critical part of their financial plan. True, there are restrictions on what you can do. Each state is a little different, but the common bottom line is no-one can purchase, sell, negotiate, bid or rent a property on behalf of another person unless they are a licensed agent, advocate or solicitor.

These are not significant restrictions. The financial planner, as the primary adviser, still has a dominant role.

It includes:

  1. General advice on property, its investment characteristics, its tax advantages, its risks, and the role it plays in the financial planning process
  2. Affordability analysis for homes, and cash flow/tax analysis for property investments
  3. Arranging appropriate pre-property inspections and reports
  4. Engaging a real estate agent, advocate or a solicitor to represent the client in the purchase negotiations (ie to do the things that strictly speaking only an agent, advocate or solicitor can do), based on a sensible time-based fee and not an exorbitant percentage fee
  5. Making sure the agent, advocate or solicitor is competent and acts in your client’s best interests
  6. Advising on who should own the property (ie your client personally, or a company, trust or SMSF connected to your client)
  7. Instructing a conveyance or solicitor to handle the purchase transaction
  8. Dealing with banks and insurance companies
  9. Arranging a quantity surveyor’s depreciation/building amortisation report, and
  10. Handing the ongoing rental management over to a real estate agent

This is before you even look at the wider opportunities. Questions like, ‘How can older clients help their children buy more homes quicker than otherwise?’ As most first home buyers receive significant parental assistance, this is a growth area for financial planners.

Property advice is well within the skill-base of most financial planners. Remember, if you don’t provide property advice to your clients someone else will.

The Dover Group