Following months of speculation, the FSI this week recommended a removal of the exception to the general prohibition on direct borrowing for LRBAs by superannuation funds.
An exception for temporary borrowing by superannuation funds for short-term liquidity management purposes should remain, the FSI stated.
Speaking to SMSF Adviser’s sister publication ifa, AIOFP director Michael Pinn said the FSI recommendation to ban direct borrowing by SMSFs is the result of the push by the banks to have greater control over investment choice, to the detriment of retail investors.
“Lobbying by institutions and vested interests continue to impact policy recommendations,” said Mr Pinn, who also heads up a Sydney-based financial advice and accounting firm.
“SMSFs were barred from using margin loans and other debt finance to purchase equities [and] now the same vested interests want to ban properly structured debt finance in direct property.
“The common theme seems to be that SMSF trustees – mums and dads – are either too dumb or too sneaky to be trusted with managing their own money,” Mr Pinn said.
Mr Pinn said institutions and other vested interests are opposed to LRBAs because they have an underlying agenda to direct funds into “buying instalment warrants, investing in geared equities where someone else controls the money or some other more costly structure”, all of which generate revenue for these interests.
While the AIOFP director did concede there is legitimate need for “constructive guidelines and better education” on the issue, he said there was no evidence to suggest there is anything wrong with “properly structured geared investments”.
He added that an “independent adviser without vested interests” would be likely to raise a number of important issues with a client including the plausibility of negative gearing and tax considerations before advising them to gear into property in their SMSF.
Australian’s now have a serious problem, you have two competing groups who are in a greed motivated scramble to force consumers to either use a bank or an industry super fund. Don’t they get it? SMSF’s are here to stay and will become the largest force in super leaving the banks and the industry super fund to pick up the disengaged. Hope they enjoy dealing with unprofitable clients. Long live SMSF.
The real problem is two fold. (a)property spruikers and/or aggressive real estate agents suggest SMSF ownership to get a sale going, and (b) extra keen credit reps/licensees suggest SMSF borrowing to sell a loan. In each case they are giving “personal financial advice without a licence” as they have necessarily recommended the SMSF as the way to transact the product they are offering. All we need to do is make an LRBA a financial product rather than just a credit product so that it can only be recommended by AFS rep/licensee. Similarly The loophole for property spruikers must be closed (they ought to have at least a RE licence, but ideally be AFS rep/licensee) and RE licensee must also be AFS rep/licensee to offer property to SMSF. Finally to prevent excessive gearing simply limit LRBA to 50% of total asset of fund. At max 70% LVR this would ensure that the fund retained at least 30% in assets other than the geared property.
Sadly it is true that the banks (and their financial planners) are behind the lobbying but what is really disgusting that they have conveniently forgotten about Trio, Westpoint and Storm and simply want to go on as if nothing happened. Watching the CBA squirming out of their responsibility, in the Financial Wisdom fiasco, is quite sickening.