I was chatting with a young property valuer the other day. He is flat out all day every day. Apartments, apartments and more apartments. He is contracted to provide cooky-cutter valuations of cooky-cutter apartments to a panel of banks, and he has a cooky-cutter conclusion too: on settlement the value of this property will be $X, with $X usually more than 20% less than the contract price.

Brisbane is the worst, with its apartment pipeline set to deliver far more completed apartments than can possibly be absorbed, leading to massive over-supply and free-falling values. Sydney and Melbourne are not far behind, with Melbourne double cursed by lazy town planning leading to off the plan crap, virtually unlivable, dog boxes in the sky. Thousands and thousands of them.

Everybody knows this. Its common knowledge. Just read the weekend newspapers.

So why are some financial planners flogging apartments?

The developers and the marketers are desperate, offering their AFSLs commissions as high as 30%.

Think about it. If someone is paid 30% of a property’s purchase price what hope does that property have of being a good investment, and living up to its marketing hype? Not a hope in hell. It’s just not going to happen.

Sure, since 2013 investment commissions have been banned, and soon LIF will halve all risk insurance commissions. An AFSL owner has to make a living somehow.… But flogging apartments to gullible mum and dads, and their SMSFs, who trusted you with their financial future, is not the answer. It’s lazy, cruel, and really dumb.

It’s also a guaranteed disaster for any financial planner lazy, cruel and dumb enough to do it.

You owe a general law duty of care to your client. You also owe three separate statutory duties to your client, being your duty to act in your client’s best interests, your duty to provide advice that is appropriate to your client and your duty to prioritize your client’s interests over your own interests.

If you recommend your client buy an off the plan apartment from a developer or a marketing company you probably breach each of these four duties. If you receive an undisclosed fee from the developer or a marketing company you definitely breach each of these four duties.

This is where the really dumb bit becomes relevant.

Your ex-client will claim you breached each of your four duties.

Believe me, the litigation lawyers are there, waiting, even panting. It’s already happening.

FOS, or a court, take your pick, will agree with your ex-client. You will be ordered to compensate your ex-client for the difference between contract price and settlement value, plus stamp duty, plus transaction costs, plus interest plus legal fees.

There is every chance your AFSL will not be insured for this claim: property is not a financial product.

There is every chance your AFSL will not be there: the LIF commission reforms will decimate AFSL profitability and numbers. And if it is still there watch it wash its hands: it’s not their problem. Property is not a financial product.  Property is not covered by their professional indemnity insurance.

You will be on your own, uninsured, and feeling really dumb. Even dumber.