Rice Warner calls for review of leverage in super

Rice Warner has told the Financial System Inquiry that the use of LRBAs raises “a number of issues” and said prudential guidelines on the use of leverage by SMSFs would “undoubtedly be beneficial”.

In its response to the FSI’s interim report, Rice Warner stated there is a need to review the use of leverage within superannuation, and for the development of guidelines on its use.

Rice Warner said the use of LRBAs has generally led to a “significant concentration” of investments within SMSFs.

“Given average SMSF account balances and median house prices, it is clear that for many SMSFs using LRBAs the underlying property represents a significant proportion of fund assets. This has a number of potential consequences for the funds.”

Prudential guidelines on the use of leverage by SMSFs would be beneficial and should include limitations on the maximum percentage of a fund’s assets that can be exposed to a particular asset, Rice Warner stated.

The firm also said the limitation of recourse in respect of any loans should be entirely to the property or other asset.

In addition, lenders should not be permitted to seek guarantees from trustees in their personal capacity or other third parties, Rice Warner said.

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