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.
Well done Peter. We need clear thinking experts out there to counter some former pollies and others who do not have the retirees’ interests at heart.
The counter argument you have to look out for is the “because super is taxed so concessionally the rest of society should have a say in how your super is invested ” Secondly springing from that is “if you lose your super you will fall back on the public purse.”
The first is essentially left wing in nature, the closest analogy I can draw is because I punched you in the head only once when I could have punched twice you should be eternally thankful. No matter that probably in your non super affairs you have paid a disproportionately high amount of tax compared to general population.
The second apparently doesn’t apply for some unknown reason if you invest in shares of companies that have geared up themselves.
Excellent work Peter and comments acknowledge this is the all-to-common position it seems that everywhere we turn, in one disguise or other, the consumer is being wrapped in cotton wool to protect the self from the self – don’t worry, just blame someone else!
[quote]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.[/quote]
Applicable to the wider discussion around financial advice…namely the FoFA situation, dominant for 5 years now.
It appears very obvious that the overriding premise, should be that the individual/s must take equal responsibility for their decisions and not blame anyone else, provided all is legal.
When will we get the truth from all the stakeholders to say it the way it is, instead of the continual effort to protect everyone from themselves…stop pointing at the profession and educate the consumer to give a stuff about their self.
Hear hear!
Peter
Couldn’t agree more. The SMSF Owners’ Alliance is ‘fighting back’ and does talk to ‘Joe and Mathias’. They’ll listen more if more of the one million are behind us. Google us. Join us.
Duncan Fairweather
SMSF Owners’ Alliance
On the basis of the argument that it might lead to different outcomes for people in SMSFs than in APRA funds should we ban Industry Funds investing in greenfield Toll Roads and Infrastructure?
Oh hang on…they lost their shirts on some of those….maybe SMSFs better off without such opportunities!
well said Peter, glad to see that logic still prevails out there.
A great summary of the BS that’s out there.
Interesting too that an APRA fund can invest in a geared listed property trust and that somehow doesn’t constitute borrowing when just a fig leaf of an inter posed entity in between. Likewise apparently nothing to worry about despite the ACTUAL financial devastation wrought in the GFC on APRA funds by exactly this situation
Perhaps there should be a rule no super fund APRA or SMSF can gear more than 50%. Including acquiring listed shares of companies that are 50% plus geared. Surely that’s fair, what’s good for the goose….
This article represents as accurate a summary of the SMSF borrowing debate as I have seen to date.