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The 'risk' of SMSF borrowing

Peter Townsend
12 November 2014 — 2 minute read

Try as they might, the economists and pundits representing the APRA funds and large fund managers cannot prove that borrowing by SMSFs is a problem.

The so-called ‘greater risks’ that are referred to are Clayton’s risks – those you have when you don’t have greater risk.

In a recent article in SMSF Adviser, one economist, in my opinion, has displayed a breathtaking lack of logic by stating firstly:


“Others have looked at this, including the Reserve Bank, and tend to agree it [SMSF borrowing] is having a relatively small impact at the moment.”

And then later in the same article:

“But more importantly, to the extent that the property market is looking overheated, this strikes me as one area that should definitely be changed. It’s a no-brainer.”

So something that’s having a small impact definitely needs to be changed? Sorry, but that statement is the no-brainer.

The article essentially relies on three arguments: namely, that borrowing by SMSFs could be a problem in the longer term because:

• it might affect the property market;

• it might lead to people losing money; or (get this)

• it might lead to different outcomes for people in SMSFs than in APRA funds.

Why should borrowing be banned or restricted simply because it might affect the property market? Not only is such a possibility unproven and unmeasured, it flies in the face of our free market system that allows for such affects and gives to each investor the right to assess that issue for themselves.

Why should borrowing be banned or restricted simply because it might lead to people losing money? Will any large institution guarantee that if you have your super with them you will never lose money?

Why should borrowing be banned or restricted simply because it might lead to different outcomes for different super investors? Never heard this curious argument before. Don’t members of different retail super funds have different outcomes? Haven’t the industry funds run a successful advertising campaign for about 10 years telling us about the different outcomes that might occur if you invest in an industry fund with no fees as opposed to a retail fund with fees?

Effectively what is being said is: it’s not fair that the big funds can’t use borrowing and the SMSFs can, so let’s stop it.

Give me a break!

The APRA fund industry is doing all it can to stop SMSF borrowing and the SMSF sector should be more vocal in fighting back. We need to tell Joe and Matthias that we and our legion of over one million members of SMSFs will not sit back and be forced to put our money with expensive APRA funds just because the retail sector is miffed about the numbers of members they are losing to the more independent SMSF sector.

Peter Townsend, principal, Townsends Business & Corporate Lawyers. 

The 'risk' of SMSF borrowing
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