Beware potential breaches with LRBAs, says lawyer
Financial advisers and accountants who provide certificates for LRBAs could be breaching the National Consumer Credit Protection Act 2009, according to one industry lawyer.
SMSF clients seeking to enter an LRBA frequently ask their adviser or accountant to complete a certificate from the lender in order to confirm they have advised the client about the terms, suitability and risks of the loan, said senior lawyer at The Fold Legal, Lesley Thorne.
These practitioners could potentially be giving credit advice, for which they may not be insured, she said.
“Unless the adviser or accountant holds an Australian Credit Licence or is a Credit Representative of a licensee, it is an offence to provide ‘credit assistance’ or ‘act as an intermediary’ in relation to consumer credit,” Ms Thorne said.
“This means that if the client’s loan is consumer credit and the adviser or accountant isn’t licensed or authorised, they can only provide the client and their lender with factual information.”
Where the trustees of an SMSF are individuals, an LRBA will be consumer credit if it is to purchase, renovate or improve residential property for investment purposes, Ms Thorne explained.
“Because the objective of an SMSF is to provide retirement funds for members, a property purchase or renovation by the SMSF will always be for investment purposes,” she said.
“This means that a loan provided to SMSF trustees who are individuals intending to purchase/renovate property will be consumer credit.”
Where a loan is to purchase a different type of asset or the SMSF has a corporate trustee it won’t be considered consumer credit, she added.
“Advisers and accountants still need to be wary in this area though [since] providing advice on the loan or a certificate to the lender could still overstep their professional boundaries, leaving them vulnerable to claims by a client or a lender that aren’t covered by their professional indemnity insurance,” Ms Thorne said.