In its submission to the Financial System Inquiry’s final report, SMSFA said it believed the use of LRBAs by superannuation funds can be a successful strategy to build retirement savings.
Limiting the use of personal guarantees by SMSF members is a policy measure that could potentially minimise risk in leverage used by SMSFs, SMSFA stated.
“Personal guarantees given by members of SMSFs allow the SMSF to undertake larger borrowings with higher loan-to-value ratios,” the submission stated.
“Without personal guarantees, an SMSF would need a greater amount to undertake investment via an LRBA in view of stricter lending policies that could be expected.”
SMSFA also called on the government to consider bringing LRBAs under the AFSL regime, a view which is continuing to gather industry support.
“Bringing LRBAs into the AFSL regime will ensure that providing advice on LRBAs falls under the Future of Financial Advice provisions. This will mean that the best interest duty obligations and the ban on conflicted remuneration will apply to LRBA advice,” the submission stated.
SMSFA also stressed that ASIC, as the corporate regulator, needs to be appropriately resourced to “police” advice provided to SMSF trustees on LRBAs.
“Even without including LRBAs as a financial product, increased ASIC resourcing would allow the regulator to take more action on advice provided to SMSFs on LRBAs by unlicensed individuals, or poor advice provided by licensed individuals,” the submission stated.
MORE REGULATION DOES NOT MEAN THAT BAD ADVICE WILL BE ELIMINATED. IT ONLY LEAD TO MORE FEES TO ADVISERS
Making LRBAs a financial product may or may not make them a safer product, what it will DEFINITELY do is make them far more expensive.
Trustees already find it very frustrating at the added expense and paperwork involved with a LRBA compared to an investment loan outside super, especially as probably borrowed more outside super and essentially 100% geared using equity in home or another property for the 20% equity the bank requires.
It could be the right thing to do but beware of professional associations promoting more regulation that enables them to charge more fees