Real estate, unlike other major investment classes, is generally not regulated by authorities such as ASIC. Unlike what is expected of a licensed investment adviser, there is not really any legal obligation for a real estate salesman to make sure that the advice given is appropriate to my clients' needs and that the client's risk and the salesman's remuneration is adequately disclosed.

Very very few real estate agents are licensed or authorised investment advisers. Real estate is a sales profession in the same way as selling cars. There are honest and hard working salesmen out there (both in real estate and autos), but your legal protection is minimal and extends only as far as protecting you from really dodgy stuff with the Trade Practices Act and similar legislation.

Because most real estate agents are not licensed investment advisers monitored and audited by ASIC, they are not really obliged to ensure that advice is suitable for you in the same way that a good financial planner does. What passes for investment advice in real estate is usually a sales pitch. (I believe the same can be said of many financial planners, but real estate people take irresponsible advice giving to a higher plane).

In this article I am referring to real estate "salesmen" and "advisors" instead of merely agents. While I am no fan of real estate agents in general I am even less of a fan of real estate people that aren't even agents. Most guys in the real estate wealth building crowd aren't even licensed real estate agents, they are essentially unqualified marketers. This is an example of the regulation of this industry, you can't go around teaching people about shares without being a licensed adviser, but you can put on a "future millionaires seminar" to a packed audience even if you know nothing about real world property investing and have a criminal record for fraud and multiple bankruptcies. Real estate agents are pretty bad as a group, but many really high profile property marketers aren't even real agents! ASIC would never put up with this with shares, futures or managed funds, but it is tolerated in property to a large extent, which is one reason why most of the dodgy seminars talk about property.

If you want some idea of what I am talking about, go to two seminars. One seminar should be given by a good financial planner or a reputable organisation like a university or the Australian Stock Exchange, and the other one of those presentations where they talk about negative gearing and wealth building and tell you to buy property. The differences are astonishing.

Financial planners talk about diversified portfolios constructed from investments in every asset class. Real estate marketers recommend you only buy real estate, and will go to great lengths to remind you of the crash of 1987 and dismiss shares as risky and speculative. Real estate salesmen say that property is a high return low risk investment and is a virtually guaranteed way to build wealth.

Financial planners recommend different portfolio mixes for different clients, depending on personal circumstances, prior knowledge and experience in the markets and psychological risk tolerance. Real estate salesmen generally claim that property is virtually nil risk and recommend you borrow to the hilt, drawing on your home equity then getting as much money from the bank as they will lend you. In a year's time they recommend you draw out any more equity you have built up in your home and your investment property to buy another one, and so on and so forth until you own a huge portfolio made entirely of investment properties.

Financial planners are supposed to design an overall strategy that includes every aspect of personal finance. Real estate salesmen only fact finding is oriented to seeing how much property they can sell you.

Financial planners talk about wealth building in a tax efficient manner, real estate salesmen talk about reducing your tax via negative gearing and depreciation.

Financial planners are obliged to disclose their fees, soft dollar benefits and other conflicts of interest. Real estate salesmen are given no such obligations, they supposedly work for the seller and not the buyer.

Because real estate is not regulated by ASIC, this is the most dodgy sector this side of speculative futures trading. Gurus come to town and play to packed audiences teaching them the "secret" techniques of wealth building, including "nothing down" real estate strategies in particular, but also a bunch of imaginative stuff about buying property for cents in the dollar from "motivated sellers", buying property with vendor finance and lease options. The vast majority of the advice given at these seminars is false and misleading, but ASIC doesn't have jurisdiction, only Fair Trading - and they are extremely slow acting. If a licensed investment adviser got up and started telling people to borrow to the hilt to buy any other investment (including property trusts), he would be banned for life, but not a real estate promoter.

Real estate gurus say that property is immensely profitable and perfectly safe not because it is true, but because they can get away with saying this. There is no mechanism to stop real estate gurus from saying misleading things about real estate, in particular residential, because residential real estate is not a fully regulated asset class.

The situation is the same here and in America. If you want to read a very good American web site that takes apart a variety of American gurus (including Robert Kiyosaki, author of the famous Rich Dad, Poor Dad books and salesman of seminars costing thousands of dollars a ticket), go to http://www.johntreed.com.