A new protocol aimed at restoring the ethics of the investment agency community was published by the Investment Property Forum this week.
The guidance, drawn up by a cross-industry group of agents, principals, accountants and lawyers, seeks to deal with two areas where the potential for conflicts of interest have been causing growing concern.
These are “double-dipping” situations, where one agency acts for multiple bidders on the same deal; and dual-agency, where one agency acts for both buyer and seller.
Both practices are thought to have become increasingly prevalent over the past two to three years and concerns were raised earlier this year at networking society the Mother’s Bunch Investment Club. This prompted Chris Ireland, the club’s chairman and lead capital markets director at JLL, to take the issue to the IPF.
The protocol calls for all principals to have a written “introductions policy” to ensure agents are clear how any introduction will be treated and for all agents to have a clear and robust “barrier policy” to deal with potential conflicts.
It stops short of calling for agents to act for only one buy-side client on a deal, but says clients and agents must agree in writing at the outset whether the appointment is exclusive or not. If the appointment is non-exclusive, the agent must maintain confidentiality at all times through a barrier policy, or “Chinese walls”. If an agent does not have a “clear and robust” barrier policy, it should not represent more than one principal on any given transaction.
Stephen Hubbard, UK chairman at CBRE, said: “We have 30,000 active instructions on properties in the UK. You cannot rely on your network to do that properly – you have to have a protocol.”
In dual-agency situations, the protocol goes further, stating: “The default position is that an agent retained to sell a property should avoid acting for another principal on the buy-side.”
However, it does accept that a firm could act on both sides of a deal in “exceptional circumstances”, such as when the firm has a pre-existing sole buying mandate for a prospective purchaser. In this scenario, the terms of engagement would need to be reconfirmed in writing, and both principals and the individuals acting for the potential buyer must be independent from the selling team.
Chris Taylor, chief executive of Hermes Real Estate, who was involved in the IPF working party, said the protocol was right to stop short of calling for an outright ban on firms acting for more than one bidder on a deal.
“The onus is on the broker to have the right controls in place. If they don’t, the risk is that they will lose clients,” he said. “We do not subscribe to the extreme view that if there is any chance of a conflict, you should not act. The bigger firms have so much reach into the market that it would slow the market down.”
Mark Morgan, founding partner of niche agent Morgan Williams, who also sat on the working group, said action to curb questionable agency practices was long overdue.
“We have been hearing more and more complaints – particularly about agents selling to themselves. It has been very difficult to get anyone to do anything about it,” he said. “The general talk is that the problem emanates from larger practices, but we are even seeing niche agencies do it.”
Morgan said he believed agents should never act on both sides of a deal and although the protocol does not go this far, he hoped it would “bring transparency to the process” and allow agents and clients to stand up when they think a deal is not being conducted on a level playing field.
However, Morgan said it was unclear what would happen if the protocol was ignored and called for the RICS to be more involved in tackling issues around conflicts of interest.
Martin Moore, former chairman of M&G Real Estate, who led the IPF group, said: “Compliance is moving into every area of our lives. The property industry has managed to keep it back, but that needs to change.”
