DomaCom Newsletter – October 2014
Welcome to the 2nd edition of the DomaCom Newsletter. Based on feedback, we have decided to make this newsletter service bi-monthly.
Clint Christoff, a Senior Adviser at Shartru Wealth Management, shares his insight on how to get started with establishing a book build on the DomaCom Fund.
1. How did you identify potential property investment clients?
We find a lot of clients are naturally comfortable with the property, but we have never been advocates of allocating huge amounts or all of a client’s funds towards a single direct property. Secondly, a large number of average clients simply do not have the funds to be exposed to a single property and still be adequately diversified.
After witnessing the behaviour of a number of property managers during the GFC, we are cautious as to their priorities and expertise, and what that internal management structure can do to a client’s investment.
Given the above factors, we have a lower allocation to property for the majority of clients as the opportunities, until now, simply were not out there. So we began by carefully selecting properties that we knew would be suitable for our clients and fit with their goals, objectives and current situation, and we employed an expert property advocacy company (Investor Advocate) to assist with this.
Once we had our selected properties we were able to discuss with clients as part of their reviews and the vast majority were more than happy to obtain some extra diversification. A large number indicated their appetite for more exposure as opportunities appeared.
In selecting the actual clients, you get to know who this type of investment is suitable for and who it is not. In our case, we found it suitable for the majority of our client base as we simply have been presenting the proposed investments to them as we go through their reviews.
2. How did Shartru start the conversation around the DomaCom Fund with your clients?
It really depended on the client. In general, we introduced it as a fractional investing concept which meant owning a part/fraction of a property, similar to how you would own part of a company.
You are entitled to the income and growth associated with your part, but also responsible for any costs associated with your part of the property the same way you would be with a normal investment property.
3. Did you review your client files specifically to get a group of clients together or just one at a time as part of your normal review process?
We generally initiated the discussion with clients as part of the standard review process. However, there were a few that we approached as we specifically knew they would be interested in this type of property investment and/or they had larger amounts of cash at the time and we knew they were investigating a number of investment options for their cash.
4. What was the most effective method of communicating the DomaCom model?
One-on-one discussion as part of the review or over the phone. It is a pretty simple product and concept which gives you direct property ownership for a fraction of the total investment required to buy a property outright. There was not a single client that had any trouble understanding it.
5. Did you provide your clients with any marketing material to help them?
We drafted explanatory notes about DomaCom, and we also prepared comprehensive information about the properties we were considering for them.
We found after completing the whole process that the client’s main interest was in the actual properties – i.e. location, rent, etc.
The DomaCom platform is simply the mechanism that allows them to purchase a part of that property.
6. What were the key selling points you used to get a client ‘buy in’ to the DomaCom Fund?
It was not difficult for clients to understand the concept if you know how to present it as an attractive investment option. We found property ownership without having to commit to hundreds of thousands of dollars was the most appealing to them.
Diversification, i.e. away from other asset types such as domestic and/or international equities, was another selling point. And lastly, a ‘home’ for some of their cash that had been parked on the sideline was another attractive feature.
7. How did clients react and what sort of questions did you get?
The main questions were around the properties i.e. where they were, how old they were, how much rent, outgoings, etc.
In regard to the DomaCom Fund’s structure, the main questions were around exit strategies, and what would happen if there was a need for a repair or renovation to the properties.
8. Once you had their agreement to the fractional property investing concept, how long did it take for you to open accounts on the DomaCom platform and transfer funds?
Assuming we have all client information needed, our Operations team can have everything completed and sent (once signed) in about 20 minutes.
If funds are remitted via EFT, they are receipted by the following day. However, it is important to remember there is a cooling off period.
9. In creating the property syndicates or sub-fund groups did you group clients according to their income or capital growth needs?
Yes, we segmented our client base. As with any investments, some are going to generate a larger income than others. Some may generate little income but they’re assets that are growth-inclined.
An additional benefit of the DomaCom structure is we can still give retirees, who are in pension phase, a diversified portfolio containing property exposure due to the fact we’re are not tying up large amounts of their cash.
10. How did you go about selecting properties and did you have options to do so?
We employed an expert property advocacy company (Investor Advocate) to assist with this process.
To be perfectly honest, the DomaCom concept of fractional property investing is not complicated. We are not out there explaining the minute workings of the DomaCom Fund to the client. We have done all our due diligence in the background and that is why we have the DomaCom Fund on our APL.
The conversation with clients is more about discussing an investment option for them within the Property asset class which is suitable for them. As I have mentioned before, DomaCom is merely a facilitator of this process.
DomaCom is a unique platform that offers financial planners an alternative to a direct property investment. It is an investment vehicle that “provides a property investment that is as close to direct property ownership as possible” within a Managed Investment Scheme. With the ability for a planner to create a private bookbuild for their clients, having the right advice in the property selection process is very important and this is where Investor Advocate’s in-depth knowledge of property investment, combined with its understanding of the DomaCom platform, assisted Shartru Wealth in successfully completing the 4 private book builds. Derek Beresford from Investor Advocate1 talks of the timing and process that they followed:
“Traditionally with property investment, once the decision has been made to invest, the next stage for the investor is selecting an investment that will work with their financial objectives. Selecting the right property to purchase needs to take into account investment objectives, prevailing market conditions and where we are in the property cycle. Having a property advisor that will work with the advisor and their client find the right property is a critical step and should occur once all the pieces are in place and the client is ready to go.
A private book builds within the DomaCom platform offers financial planners the opportunity to group their clients together and assist them with the property selection process. When a financial planner is looking to create a private bookbuild, choosing the property for investment needs to occur earlier in the process as time is needed to present the property and to keep as much control of the asset as possible during the bookbuild process. Before inviting clients to participate the planner would consider clients’ investment objectives, risk profile, asset allocation to property and capacity to invest via the DomaCom Fund. It is at this point that the property advisory should be appointed to assist in the property identification process. Selecting a property that will meet the needs of a group of investors can take a bit more time. The property advisor can also assist with the preparation and presentation of the asset.
Our work with assisting Shartru with their first 4 private book builds, involved a review with the planners of each clients’ overarching needs. It was established that income was the main driver that needed to be provided. They also wanted to limit groups to 8 participants within each property. When considering the amount that each client was looking to invest, that gave us the budget. It was at this stage that we went out to the market to select an appropriate property and considered multiple asset types as well as locations. Investor Advocate was able to secure a number of properties and worked with the vendor to be able to provide the time required for the planner to invest the client’s funds into the platform and complete the book builds.
Investor Advocate was able to secure a number of properties and worked with the vendor to be able to provide the time required for the planner to invest the client’s funds into the platform and complete the book builds.
It is Investor Advocate’s objective to be part of the investment team, working alongside the planner to provide the property advice and expertise for successful property investment. Our in-depth understanding of the DomaCom platform can assist financial planners with the property selection and book building process.”
1 Please note that Jason Bennett is the Head of Property of the DomaCom Fund and the Founder of Investor Advocate.
Backed by one of the big 4 banks, the DomaCom Cash Fund currently offers approximately 0.60% return over the Reserve Bank of Australia (RBA) cash rate.
While the cash account is linked to the DomaCom Fund for fractional property investing, it is treated as a standalone fund for investment purposes. This means investors can their keep money in the DomaCom Cash Fund without investing in property at all and maintain daily access to their cash while enjoying a return of approximately 3.1% (after MER). For more information, please download our Product Disclosure Statement (PDS).
by Miriam Sandkuhler, Property Mavens
It’s important as advisors when working with your clients, that you help them to understand the way the property market works and that all property advice (free or not), ‘costs’ at some point.
Unlike the financial planning, mortgage broking and insurance sectors, the property sector is not regulated by a national governing body such as ASIC so alarmingly, there is no requirement for people involved in the property sector to have a minimum qualification to provide ‘property advice’.
As a result, there is an abundance of property spruikers, selling agents, developers and even brokers, planners and accountants who are all selling property based on the ‘free’ education, strategy and advice they provide. This property based education often takes the buyer down the path of buying whatever property or strategy the ‘expert’ has to sell, because it matches the ‘free’ education provided (the exception being those who offer genuine independent and unbiased ‘advice based’ buyer advocacy services).
While ‘free advice’ provided by unqualified property advisors may seem harmless, the consequences can be devastating! The difference between buying an average property growing at 5% pa, versus an investment grade property that outperforms the market at 9% pa on a $400,000 purchase, could literally make $100,000’s and even millions of dollars difference over a 10 – 30 year period. So while the advice has been free, it has cost your clients a phenomenal amount of money in equity growth.
As an aside, there is also the matter of conflicted commissions that some financial planners are earning when referring to project marketers, developers and property spruikers. In this instance, they always represent the vendor in the transaction and not their client, so they aren’t acting in their clients best interests at that point. There is a risk to their business that is associated with receiving these ‘referral’ fees (commissions), especially if they are not disclosed upfront. In many instances, the referrer’s fee is built into the property price, which means the client could be overpaying for the property. This is why it is important for your clients to seek advice and support from formally qualified property advisors who disclose all fees upfront and have professional indemnity insurance which covers the provision of that advice.
We are a proud sponsor of the following upcoming events. Be sure to visit us at our stand and meet the DomaCom team in person:
- AFA National Adviser Conference – 12th – 14th October, Cairns Convention Centre.
- PIR (Property Investment Research) – 16th – 17th October, Sheraton Hotel, Noosa
- ATSA Accountants Technology Showcase Australia – 20th – 21st October, Crown Conference Centre, Melbourne. See below for more information on our special offer.
- SMSF Adviser Strategy Day – 28th October in Sydney, 29th October in Brisbane, 30th October in Melbourne.
- AIOFP Annual On-shore Conference – 19th – 22nd November, the Intercontinental Hotel, Sydney.
- FPA Professional Congress – 19th – 21st November, Adelaide Convention Centre.
ATSA is Australia’s only dedicated independent technology event for accountants in practice.
SPEED DATING FOR TECHNOLOGY. Conducted over two days. Sessions are 30 minutes with 5-minute breaks to allow you to move from session to session. There is no quicker way for you to learn about all the opportunities to improve your practice. When a product interests you, the suppliers are all available to provide you with additional information in the exhibition area.
As a proud sponsor, we are offering you a discount* of $110 off your full two-day attendance to ATSA 2014.
Use the online registration form, and enter the 3 letter code: DOM at the beginning of the registration process in the ID Code area.
Book now to attend the only event that ALL the major suppliers attend, allowing you to directly compare offerings.
*Applies to a standard two-day fee only – does not apply to early bird or one-day tickets
PD Days are an opportunity for you to sharpen your skills through specialised workshops, hear from industry experts and share ideas and opportunities with your peers.
Fractional property investing is a new and exciting investment concept, and we believe it will further enhance investment offerings to clients. Why not book DomaCom for your next PD or training day?
Please contact our Sales Team at email@example.com and we would be happy to arrange this for you.
DomaCom supports IFAs: