Double dipping ban could be just the start

A new RICS standard published this week formally bans its members from “double dipping” in UK investment deals from 2018. Is this the start of a new wave of regulation for the industry? The new standard means an advisory firm could be fined or see individual agents struck off the RICS membership register if they advise both the buyer and seller of an asset. It will also require clients to be notified when agents are representing multiple parties bidding for a scheme, and for incremental increases in services provided. Now the RICS is considering whether further regulation of potential conflicts of interest is needed for other areas of the industry. “It could be leasing, it could be development agency, similarly geographic regions may require additional guidance and clarity,” says RICS associate director of commercial property Nigel Sellars. “There are a whole host of other areas which may or may not see guidance. It is not the end of the complex journey…We will be continually reviewing our guidance and taking feedback from the market to see whether specific risks are identified and then acting upon that appropriately.” The property sector has avoided the levels of strict government regulations imposed on the accountancy and financial services sectors. More comprehensive guidelines from the RICS is one way of avoiding the threat of external regulation. “It is better that the industry regulates itself rather than someone regulates us,” says David Erwin, managing partner of Dunluce Property and former chief executive of Cushman & Wakefield’s capital markets group. Erwin was a member of the Mothers’ Bunch, the group of investment agents named after a City wine bar which he says was instrumental in first calling on the Investment Property Forum and RICS three or four years ago to rethink the existing guidance. How widespread is double dipping? “I don’t think [dual agency] was common,” says Erwin. “But I think the evolution of agency into a lot of bigger firms getting a bigger share of the market meant that we slightly stumbled into it. It became an accepted practice, without anybody standing back and thinking: is this right, or is this wrong?” One London investment agent, who does not want to be named but has experience in some of the largest firms, says dual agency has been more common in major firms because you have large teams competing to act on a limited number of deals. “If you have a client you know well and your company is selling something and you have been acting for them, obviously you don’t want to release it to someone else,” he says. He adds: “Acquisition fees are better than sales fees normally.”  So, if on a reduced fee, finding a way to also act for a buyer can be an “innovative” way to improve profits. Sales fees tend to be around 0.3-0.5% for open pitches, compared to around 1% for buyers, he says. Having agents acting for both sides is not necessarily bad for the client, he adds, saying it can bring “security”. Trevor Morgan, managing partner at Morgan Capital Partners, says he does not have a problem if he is represented by an agent at the same firm as the agent on the sale side of an investment deal as long as he is informed. “In this situation, the main thing is that you are aware, because sometimes it facilitates a deal well,” he says. “What I find difficult is a firm acting for three different purchasers on the same building… I just cannot see how that is right.” The new standard says agents must inform clients if they are not acting for them exclusively, but does not ban the practice outright. Should the guidance go further? Some believe multiple introductions should be outlawed. Tony McCurley, co-founder of GM Real Estate, says: “Our view on multiple introductions is it’s fine to offer an opportunity to various clients as an idea, but as soon as one moves to the next stage when they are intending to do something about it then the problem arises and you have to make a choice and advise one only. “If you are selling, you might say it does not matter how many bids come in from a particular agent, but the problem is that the buy-side agent is influencing the marketing process because it often will find itself in a difficult position and then be inclined to limit or influence which of its clients it will persuade to push to get it aggressively. That doesn’t help the seller, who wants as much competition as possible.” Other niche firms, which tend to brand themselves on their impartiality, are calling for the practice to be extended to other areas of the industry. Chris Aquilina, director of Spring4, which only advises occupiers on leasing deals, says: “The logical extension [of the RICS guidelines] would be to include the leasing market. “Where a dual agency occurs there is often a conflict between the value of the relationship with one client over the other. Most large agencies garner the majority of their fee income from landlords rather than tenants.  Tenants need to ensure that they take impartial advice.” David Mann, partner at independent building consultancy Tuffin Ferraby Taylor, is concerned about conflicts among building surveyors. “I am concerned by some stories we hear of agents putting pressure on their building surveyor colleagues requesting them to ‘tone down’ their reporting of defects or other issues so as not to potentially compromise a ­successful transaction,” he says. “I have huge respect for my fellow building surveyors in agency firms and the majority would resist such requests as it is not in their interest not to highlight potential risks to their clients, but I am afraid we do see reports where this has clearly happened.” Industry backing The new rules are likely to ­bolster the market for niche firms, but the largest firms are behind the new proposals. CBRE, JLL and Savills have all pledged their support for the new standards and helped develop them. “JLL will always work in the best interests of our clients, and integrity within the investment market is fundamental to the protection of all clients,” says JLL chief executive Chris Ireland. If the industry can regulate itself effectively, it can maintain the faith of its clients and the public – and avoid the spectre of potentially stifling government regulation. Need to know: the new RICS rules Dual agency is formally banned by the RICS from 1 January 2018, defined as “where an agent has a contractual agency relationship with both the seller and the buyer at the same time”. The ban applies to all RICS members, including those who are working in non-RICS-regulated firms. It applies to any deals where the commercial property is located in the UK. Agents must also inform clients if they are not acting for them exclusively on the potential purchase of a property. The same applies for any incremental agency. If a complaint or information which would lead to a potential complaint is received, the RICS regulation team will make “a full and thorough investigation of the situation”. Consequences could include a fine to relevant firm or, in the case of an individual, removal of membership from the RICS.  Photo: © Jeff Blackler/REX/Shutterstock To send feedback, e-mail Louisa.Clarence-Smith@egi.co.uk or tweet @LouisaClarence or @estatesgazette