The Financial System Inquiry’s recommendation to ban limited recourse borrowing arrangements (LRBAs) reflects the influence of political lobbyists working for the major institutions and other vested interests, says a director of the Association of Independently Owned Financial Professionals (AIOFP).
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.
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