Financial Advisers and Direct Property Recommendations: Staying Within Scope
In Australia, financial advisers are often approached by clients seeking guidance on significant transactions involving direct property — including residential, commercial, or rural properties. While property can be an important part of an overall wealth strategy, advisers must ensure they remain compliant with the Corporations Act 2001 and the regulatory framework overseen by ASIC.
When a client’s strategy involves a property purchase or sale, advisers can address the financial and strategic considerations of the transaction, but they must not step into the territory of recommending a specific property or making real estate-specific judgments. Doing so risks going beyond the scope of financial advice and into unlicensed territory.
Direct Property and Financial Products: What the Corporations Act Says
When it comes to investing, Australians have a wide array of options—from shares and managed funds to real estate and crypto. But not all investments are treated equally under the law. One common question is: Is direct property a financial product?
The answer lies in Chapter 7 of the Corporations Act 2001 (Cth), which governs financial services and markets. Let’s unpack what the law says.
What Is a Financial Product?
Under Section 763A, a financial product is generally defined as a facility through which a person:
Makes a financial investment,
Manages financial risk, or
Makes non-cash payments.
This broad definition captures a wide range of instruments, including shares, derivatives, superannuation, and managed investment schemes.
What Is Not a Financial Product?
Here’s where things get interesting. Section 765A of the Act lists specific exclusions—things that are not considered financial products, even if they might seem like investments.
One of the key exclusions is:
An interest in real property (i.e., direct property ownership) that is not part of a managed investment scheme.
This means that if you own property directly—say, a house, apartment, or commercial building—you are not dealing in a financial product under the Corporations Act.
Managed Investment Schemes vs. Direct Ownership
The distinction hinges on whether the property is part of a managed investment scheme (MIS). An MIS typically involves:
Pooling money from multiple investors,
Having a responsible entity manage the investment,
Investors not having day-to-day control over the property.
If your property investment is structured this way, it is a financial product and subject to regulation.
But if you buy and own property directly, without pooling funds or relying on a scheme manager, it’s not a financial product.
Implications for Financial Advisers
Because direct property is not a financial product:
Your financial services licence does not authorise you to recommend buying or selling a specific property, unless you also hold an appropriate real estate licence under state/territory law.
You can provide advice on the financial and strategic considerations of property ownership or disposal, such as:
Cash flow and affordability
Debt structuring
Taxation consequences
Diversification benefits or risks
Retirement planning implications
You cannot:
Recommend a specific property address or suburb
Comment on the structural condition or market appeal of a property
Advise on the “fair value” of a specific parcel of land or building
Instead, those matters should be referred to independent and appropriately licensed real estate, legal, and valuation professionals.
Clarifying the Scope of Advice in the SOA
When preparing a Statement of Advice (SOA) that includes recommendations related to direct property, you should make it clear that:
The advice relates only to the financial and strategic implications of buying or selling direct property (e.g., cash flow impact, gearing strategies, portfolio diversification).
· You are not expressing a view on the merits, condition, or market prospects of the specific property.
Best-practice SOA disclaimer example:
Disclaimer: This advice considers the financial and strategic considerations and implications only and does not constitute a recommendation to purchase or sell a specific property. You should seek separate independent legal or property advice regarding any property-specific matters.
This reduces the risk of client misunderstanding and clearly documents your compliance position.
Tips to Appropriately Scope the Property Transaction
Define the boundaries — Be clear that your advice relates to financing, affordability, structure, and strategy.
Avoid property-specific judgement — Don’t comment on suburb growth, comparable sales, building quality, or tenant demand.
Refer to qualified professionals — Direct clients to:
Licensed real estate agents / buyers’ agents
Solicitors or conveyancers
Property valuers and building inspectors
Document client decisions — If the client has already chosen a property, note their selection was independent of your advice.
Use scenarios, not specifics — Model cashflows and outcomes using hypothetical examples.
Compliance Risks if You Step Over the Line
1. Unlicensed Real Estate Advice
Recommending a specific property could be considered real estate advice, for which you may not hold the necessary licence.
2. Misleading or Deceptive Conduct (s1041H)
If a client relies on your comments as property selection advice and it results in a poor outcome, ASIC or the client could allege misleading conduct.
3. Breach of Best Interests Duty (s961B)
Providing advice beyond your competence or authorisation could breach s961B of the Corporations Act.
4. PI Insurance Cover Limitations
Professional indemnity insurance may not respond to claims related to property-specific advice, especially if it's outside your authorisation scope.
5. Regulatory Sanctions
You could face ASIC investigation, licence conditions, or disciplinary action by your licensee.
Key Takeaway
When advising on direct property strategies in Australia, focus solely on the financial and strategic implications — such as taxation, gearing, cash flow, diversification, and retirement planning impacts.
Never make recommendations about a specific property’s suitability or value — instead, direct clients to qualified real estate, legal, and property professionals for those decisions.
Clear scoping and disclaimers in your SOA and ongoing discussions not only protect you from compliance risk but also deliver better outcomes for your clients.