Blame poor advice not LRBAs for gearing issues: IPA
Targeted measures to address the inappropriate use of gearing resulting from poor quality advice should be favoured over the proposed banning of borrowing in SMSFs, according to the Institute of Public Accountants (IPA).
IPA chief executive Andrew Conway said the recommendation by the Financial System Inquiry to reinstate the ban of limited recourse borrowing arrangements (LRBAs) within SMSFs “may not be the appropriate way to eliminate the use of poor quality advice relating to SMSF gearing”.
“The IPA believes that the issue is not SMSF borrowing per se, but inappropriate advice provided by unlicensed advisers,” said Mr Conway.
“We need better analysis of ways to address the risks surrounding borrowing before merely imposing an outright ban.”
Mr Conway said there is no evidence to suggest that LRBAs in SMSFs posed a risk to the superannuation system as suggested in the final FSI report.
“Interestingly, there are also no alternative measures other than an outright ban to mitigate some of the concerns raised,” he said.
“For example, if they are worried about the diversification, why not consider excluding LRBAs for funds with small balances.”
There is plenty of scope, Mr Conway said, to amend the rules to specifically address all of the issues raised without resorting to a total ban.
Miranda Brownlee is the deputy editor of SMSF Adviser, which is the leading source of news, strategy and educational content for professionals working in the SMSF sector.
Since joining the team in 2014, Miranda has been responsible for breaking some of the biggest superannuation stories in Australia, and has reported extensively on technical strategy and legislative updates. Miranda has also directed SMSF Adviser's print publication for several years.
Miranda also has broad business and financial services reporting experience, having written for titles including Investor Daily, ifa and Accountants Daily.