Property Trust Investment Australia - Safe? Free Financial Advice for Australians

Just when we thought it was safe...

....Trust me, I'm a financial planner

What a surprise to see the country's largest financial Services Company getting a ping from ASIC. ASIC has found that AMP Financial Services, or AMPFP, may have given faulty and inappropriate advice to some 7,000 clients who collectively invested around $100 million. There are allegations of pushing their own products. AMP has now an enforceable undertaking with ASIC and will review its procedures. ASIC's action against AMP FP will have a ripple effect throughout the whole financial services industry but I suspect there will be little change.

The industry still disgraces itself at every turn. What a surprise that the biggest financial advisers in the country are pushing their own products. Gee, how could that happen, sell their own products? AMP Financial Services have 10 industry superannuation funds on its product list, but let's look at the numbers with more clarity. Between January and October 2005 93% of clients' money at AMP was channelled into AMP products, which ASIC noted was not unusual for large dealer groups. Now understand that 85% of financial planners are owned by the large institutions, which means that under the guise of independent advice most are simply pushing their own products. But we knew this, didn't we?

Readers of this newsletter will be aware of my views of the large institutions and their objectivity. Craig Dunn, Managing Director of AMP Financial Services, likened AMP FP to a restaurant and said that if people didn't like the menu they shouldn't enter. Who are you kidding Craig, no that's not right! When you purport to serve Italian, Asian, French and all the other food of the globe you don't expect all your customers to end up with a meat pie. And by the way, what does that make AMP advisers? Waiters?

AMP now has to review those 7,000 clients to see if the meat pie was appropriate for their tastes. Fortunately when you go to a restaurant the bad decisions you may make only last around 24-hours, unlike financial advice which can have a lasting impact for many years. ASIC's review of AMP FP suggests that less than 55% of those 7,000 clients received appropriate and properly documented information. Well, 1 in 2 got it right. I can't imagine many other industries that would survive with a 50% "getting-it-right track record". I'm certainly glad that AMP is not running Airlines or Hospital operating theatres.

Who would blame the advisers because by recommending their own products they obviously get far more Money disguised of course as "bonus dollars", "bonus points", "commission points", "commission credits", or "salary credits". It all equates to more money for recommending their own products.

I did notice in a recent article in a popular Australian share magazine recently which rated some of the top 30 performing fund managers in Australia combined with low fees. Guess what - AMP didn't have one of their funds in this list. I don't think it's a matter of how appropriate the advice, more to the point it's how inappropriate most of the advice is from the large institutions. As long as this culture pervades the financial planning industry, objective advice is still hard to find. I don't think any of us are actually still fooled into thinking the institutions actually care about us (as some of the advertising would have us believe) This "We take care of you" or "look after you" or "nurture your growth" is exactly what we know it to be... SPIN. The large institutions are interested in profits and their share price. So it may be appropriate to invest in their shares, but please.... don't let's get our financial advice from them.

Residential Investment Property or Listed Property Trusts?

Australian investors do have a love affair with property as an investment. For the most part, however, investors have focused on residential property but is the buying an investment property a sensible way to invest. What about listed property trusts?

What are listed property trusts?

A listed property trust (LPT) is a collective investment vehicle that owns a portfolio of real property. Listed property trusts are quoted on the Australian Stock Exchange (ASX), which allows investors to purchase an interest in a professionally managed portfolio or commercial real estate. Property trust managers invest in properties across a diversity of geographic regions, with varying lease lengths and tenant types. As at December 2004, there were more than 65 LPTs listed on the ASX, with a combined market capitalisation of over $74 billion. There are now a few less with recent consolidation

Advantages of listed property trusts

While history has shown that property has proven to be a good investment, residential property is only one way to access the property sector. LPTs can give you the peace of mind of knowing your money is invested in bricks and mortar, but at the same time offer additional advantages.

The following looks at eight advantages of LPTs over traditional residential property investments:

1. Diversification: We all know the phrase 'don't put all your eggs in one basket.' Well, the same principle applies to property investment. There is a significantly higher chance of an isolated event pressuring the value of residential investment property compared with an investment in LPTs where the risk is spread across a number of properties. LPTs generally invest across a number of different property sectors, such as office, retail and hotels - not just residential property. Given that these sectors do not perform in unison, this results in further diversification. Some LPTs also have exposure to international property, providing yet another level of diversification. There is not much diversification buying that 1 property in one street in one suburb in one town in one country.

2. Liquidity: Perhaps in the future you may need to sell your investment. While selling a residential property can take some time - finding an agent; advertising; negotiating the sale and settlement - the sale process with LPTs is significantly faster. LPTs are listed on the ASX, so selling an investment is as easy as placing an order with a stockbroker. Furthermore, instead of selling your entire investment, you can choose how much you liquidate. In comparison, with a residential investment property you need to sell the entire holding.

3. Access to new opportunities: LPTs provide investors with investment access to sectors of the property market once reserved only for the extremely wealthy. With the combined spending power of investors, LPTs invest in hotels, office towers and shopping centres. The price of these properties is generally well beyond the scope of the average investor.

4. Expertise: LPTs are managed by property professionals. They are skilled at determining which properties offer the most value, in terms of capital growth and income, negotiating on price, development, tenanting and ongoing maintenance. Whilst the key to investing in property is buying well, further value can be added through successful management.

5. Higher yields: the average rental yield for a three-bedroom house in Sydney over the 12 months to December 2005 was 2.6% (and that's before any expenses were taken out such as agents fees repairs and maintenance). This compares with yields from LPTs that averaged over 4.5% over the same period (after fees).

6. No need to borrow: With the average Australian house price close to $507,500, investing in residential property demands a significant capital investment and in most cases a large amount of debt. In comparison, the minimum capital investment required to gain exposure to the property market through LPTs is generally around $1,000. However you can still borrow around the same amount to invest as if you were buying your own investment property.

7. No surprise bills: With LPTs there is no additional expenditure required other than the initial investment. Water rates, council rates, strata feeds, one-off special levies and property management fees are just a few of the bills that you might expect with a residential property.

8. No stamp duties: When you buy a property, you incur a stamp duty that may run into several thousand dollars, depending on the sale price. In contrast, there is no stamp duty on buying shares in LPTs. To give you an estimate, the stamp duty on a $507,000 investment property in NSW is currently more than $18,000.

How to invest in listed property trusts

There are over 60 LPTs currently listed on the ASX. Each has a portfolio of properties and often operates in different sectors of the market including retail, hotels, office, industrial (factories) and residential (through housing projects). Many of these LPTs also have property holdings in countries other than Australia.

Like investing in actively managed equity funds, property security managers attempt to provide higher returns than the market, adjusted for risk and fees charged.

If you do have an obsession with property, you should at least try and get the best return?

Property Trust Investment Australia - Safe?