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.
It amazes me that banks on their so called “no recourse” loan requires guarantees form the Trustees / beneficiaries. They charge excessive fees to set the loans up on the basis of being more risky yet they take no additional risks by demanding personal guarantees anyway. Way to gouge thousands of dollars of fees for no additional expense or risk.
Prescribing percentages of how much of an asset class can be held by a SMSF would by definition make them no longer SELF MANAGED super funds and it is this mindless % type thinking that lots of SMSF members are trying to get away from. Warren Buffet has ridiculed this type of thinking for years. Ie you don’t sell an asset because it’s fundamentals have changed but because you have breached some arbitrary threshold.