New regulations may catch real estate agents

by Philip Macalister

The government has for some time been working to beef up the laws around the provision of investment advice. Firstly through a task force in 2004 and now it has released a discussion document on changes.

Its aim is to increase public confidence in the financial advice area.

"The current voluntary or sector specific regulation of intermediaries is failing to ensure that intermediaries are accountable to consumers, that intermediaries have the experience and expertise to match consumers with products, and that consumers are able to make informed decisions about their intermediaries," the document says.

One of the questions being asked is who is an investment adviser? Besides financial planners, sharebrokers, insurance advisers and mortgage brokers there is pressure on the officials to include real estate agents in the definition.

MED says that "real estate agents may provide financial advice if investment property is a financial product, as real estate agents provide recommendations, opinions or guidance on investment property.

The general manager of the Professional Advisers Association, Dave McMillan, says his association and three others have pushed the idea to MED officials during the formulation of the discussion document.

The other three associations are the Financial Planners and Insurance Advisers Association, the Life Brokers Association and the Society of Independent Financial Advisers.

McMillan says it is important that the definition of "financial adviser" is put into the open and discussed.

He says the only exemption in the real estate space is where a property is sold to someone as their residence.

"There is no reason why real estate agents should be exempted," he says.

Many real estate agents are "aggressively" marketing investment properties to people.

He says that investors face much more risk doing this sort of transaction than buying life insurance, therefore it makes sense they be included in the new rules.

Residential Property Investment group managing director Alan Rolston says there needs to be something set up to protect consumers in this area.

He says many groups operate good operations, however there are a number of people who are not licensed real estate agents and are only interested in generating commissions for themselves.

"There's got to be something set up to regulate this group," he says.

"I'd have no problem with regulation as long as it doesn't entail massive fees."

Some real estate agents spoken to by the NZ Property Magazine were unaware of the discussion document or this issue when we contacted them.

Real Estate Institute president Howard Morley said he had seen a summary of the document and that he has no problem with the idea of regulation.

"Our position is that if a real estate agent wants to sell investment property then they have to comply with the regulations."

"The industry has no problem with regulations being tightened," Morley says.

He says REINZ is about to talk to its members about issues around setting up syndicates and partnerships. Some information on this issue will be "tacked" onto that.

Under the proposals, there would be several categories of advice which each have different requirements. At the low-level end is the 'information-only' adviser who is limited in what information is provided to the public. At the other extreme is the 'high level' intermediary who is providing full financial advice.

These people would have to belong to a regulatory body, known as an Approved Professional Body, and would have to abide by a code of conduct, provide certain disclosures relating to fees and potential conflicts of interest, and be subject to a disciplinary body.