A successful court ruling against a property spruiker has created a test case, emphasising the need for anyone recommending or facilitating SMSFs as a way of investing in property will need to have a licence and provide appropriate advice to clients.
Following ASIC action, the Supreme Court of New South Wales found Park Trent Property Group had been unlawfully carrying on a financial services business for over five years by providing advice to clients to purchase investment properties through an SMSF.
It was found in the public interest that the group be restrained from carrying on a financial services business.
“Why is this matter important and why have I raised this?” ASIC deputy chairman Peter Kell told the SMSF Association NSW Chapter Breakfast in Sydney last Tuesday.
“Because it is, in fact, the first test case to establish that if you provide advice on direct property investment through an SMSF, you have to be licensed and you have to satisfy all the requirements under the Corporations Act.
“That was a position we reached but hadn’t yet tested.
“As you may know, ASIC doesn’t otherwise regulate direct property investment or real estate agents, but if that happens through an SMSF, the courts have now ruled that will require those advisers or promoters to be licensed.”
In handing down the judgment, Acting Justice Ronald Sackville observed that Park Trent’s business model depended on “persuading relatively unsophisticated investors of the virtues of using their super accounts to purchase investment properties and to establish SMSFs”.
“Investors were influenced to make important decisions concerning their superannuation strategy with little or no genuine consideration of whether the decision took proper account of their individual financial circumstances,” Sackville said.
“Some suffered financial loss as a consequence.”
He also referred to the role of Park Trent’s chief executive, Ronald Cross, and referred to his “willingness to ignore legal advice as to the nature of Park Trent’s statutory obligations”.
The decision served as a warning to others who conducted or proposed to conduct businesses that sought to influence clients to establish SMSFs for investment purposes without having the necessary licence to do so, he said.
ASIC said its message for anyone recommending or facilitating SMSFs as a way of investing in property was that they would need to have a licence and provide appropriate advice that prioritised the client’s interests.
“It is important that advisers who deal with SMSFs are appropriately licensed because the important safeguards and standards that come with being licensed are in place for a sector which is of growing importance to more Australian investors,” Kell said.
AISC launched legal proceedings in November 2014 against Park Trent, which by the time of the trial in June 2015 had advised over 860 members of the public to establish and switch funds into an SMSF.
The parties have until 29 October to file submissions on the form of final orders.
