Asset allocation is an investment strategy designed to balance risk and reward by diversifying across the major asset classes – property, equities and cash/fixed interest – each of which performs differently over time, known as cycles. When one asset class is up, another may be down.
Trying to time cycles can add risk rather than minimise it. It is more prudent therefore to allocate funds across all markets to maximise return and minimise risk. Diversification within each asset class, similarly, reduces the single asset risk exposure that you might have with shares in only one company or by purchasing a single property.
Broadly speaking the benefits to you in a fractional property investment model are;
- increased revenue – by bringing the property asset class into the advisers fee basket, which for most financial advisers has not been possible before with residential property investment
- client retention and protection – advisers not providing an investment property solution run the risk of clients buying outside the advisers influence, potentially using their FUM to purchase and running the risk of buying inappropriate property at inflated prices
- greater client reach – the ability to invest fractionally widens the prospect base for every adviser, be it the children of clients or possibly clients with less financial resources than required to purchase a whole property. It opens the door to GenY who both understand and value property more than most other asset classes
Because fractional property investment is simply a new asset class, and therefore a regulated product,, you must be an authorized representative (AR) under an Australian Financial Services Licensee (AFSL) to recommend recommend the structure to your clients.
What you are recommending to clients is the structure, not the underlying asset. Engaging a qualified property adviser (in the same way you would engage a stockbroker to select a portfolio of shares) to source an appropriate property from a brief you provide on your clients risk appetite, investment objectives and preferences and then supplying the SOA content, enables you to include the value of the property investment in your fee basket.
Providing benefits to your clients also benefits your practice in a number of ways;
- New or increased revenue from the property asset class
- Increased client reach – Gen Y, SMSF Trustees who both understand property
- Increased referral business from your now new property investors
- Protecting clients from external property marketers selling inappropriate and/or over-priced property
- Protecting your funds under advice – external property marketers who sell to your clients may be taking funds from your care and are well positioned to further undermine your relationship
In future series, we will delve into the book build process used to acquire properties. We will also examine case studies from advisers who have chosen to include fractional property in their service delivery.
For further information please contact your DomaCom State Manager via www.domacom.com.au where you can also subscribe to our informative bi-monthly newsletter and featured property investments.
