A recent decision[1] by the Supreme Court of New South Wales highlights the need for caution when speaking to prospective purchasers regarding the purchase of properties through a self-managed superannuation fund (SMSF).

In the matter of Australian Securities & Investments Commission v Park Trent Properties Group Pty Ltd, the Supreme Court found estate agents Park Trent Properties Group (Park Trent) had systematically provided customers with financial advice regarding the establishment of SMSFs for the purpose of property investment, and accordingly Park Trent had broken the law by carrying on a financial services business without a licence.

FACTS

The proceeding was brought by the Australian Securities & Investments Commission (ASIC) after a lengthy investigation concerning advice provided to more than 860 members of the public over 5 years.

Among other things, Park Trent’s business model involved conducting large-scale property investment seminars, and conducting home visits to follow up with prospective purchasers, in the course of which it sought to encourage the establishment of SMSFs for the purpose of accessing funds to invest in property.

FINDINGS

Relevantly, s 911A(1) of the Corporations Act 2001 (Cth) provides, a person must not carry on a business of providing financial services without holding an Australian financial services licence (AFSL) covering the scope of those services.

The Court found that Park Trent’s business model involved their staff systematically giving financial product advice regarding superannuation interests – that is, making recommendations or statements of opinion that could reasonably be regarded as being intended to influence a person to:

  • establish a SMSF
  • transfer money into a SMSF, to be used for property investment
  • become a member of a SMSF.

Accordingly, the Court declared that Park Trent had unlawfully carried on a business of providing financial services without an AFSL.

CONSEQUENCES

Park Trent was ordered to place a corrective notice on its website regarding the contraventions for a period of 90 days, and to pay ASIC’s legal costs.

The Court also granted a permanent injunction restraining Park Trent from providing unlicensed financial product advice to clients regarding SMSFs.

Acting Justice Sackville observed that:

[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. Some suffered financial loss as a consequence.[2]

It is important to note that a contravention of s 911A carries other consequences that were not sought by ASIC in the proceeding, but which might arise in other cases, including:

  • a contravention may be prosecuted as a criminal offence
  • the recipients of unlicensed advice might potentially seek damages or the rescission of any associated contracts of sale.

LESSONS

Subject to certain exemptions, it is unlawful to carry on a business which involves expressly or impliedly making recommendations or stating opinions as to the establishment and use of an SMSF for the purposes of property investment, without an appropriate AFSL.

A property developer or real estate agent who does so may be unlawfully carrying on a financial services business, despite the fact their business could otherwise be described as relating to property.

A party is more likely to be ‘carrying on a business’ of providing financial services if the services are provided repeatedly, systematically or on a continuing basis[3]. In some cases, however, a single significant transaction may be sufficient to meet the threshold.[4]

In his judgment against Park Trent, Acting Justice Sackville noted the orders made were crafted so as not to prohibit activities customarily performed by estate agents on a lawful basis.[5]

In particular, it will not be unlawful for an estate agent to merely facilitate the purchase of investment properties by means of an SMSF, provided the estate agent does not provide financial advice in respect of the SMSF or its establishment.