The SMSF Professionals’ Association of Australia (SPAA) has thrown its support behind reviewing limited-recourse borrowing arrangements (LBRA) and a proposal that anyone providing advice on any aspect of a self-managed super fund’s investments should be licensed.
SPAA’s director of technical and professional standards, Graeme Colley, says the Cooper review of the superannuation system recommended such a review, the review has not yet happened.
Colley says it would help “settle down” the commentary and claims about SMSFs’ exposure to property, and associated issues such as gearing.
“The real estate thing is still going on. We saw Paul Howes [national secretary of The Australian Workers’ Union] come out a couple of weeks ago and talk about that,” Colley says.
“The Cooper review proposed that within two years limited-recourse borrowing be reviewed by Treasury, and that hasn’t taken place. I think there’s been a number of reasons for that. The legislation changed; we saw a new government come in; and there were other priorities set for Treasury and limited recourse borrowing wasn’t on the top of the list.”
“The concerns of the Reserve Bank were really around merely saying to people that self-managed funds are now an important part of the investment market; that with superannuation funds borrowing, maybe in the longer term we need to look at the risks associated with the borrowings.
“But we know from talking to the banks that they’re stricter [with SMSFs] than with ordinary personal individuals coming along and getting mortgages for property.
“I’d hope it settles down firstly allegations that limited recourse borrowing is going to create a spike in the real estate market. We certainly haven’t seen that, and it would have to mean an enormous shift in people’s investment appetite in self-managed funds to do that.
“It would also hopefully make some recommendations on whether or not the advice relating to real estate in self-managed funds subject to borrowing was then a financial product – because we’ve seen draft legislation twice come out on that yet nothing has gone forward on it. We think that might settle things down as well.
“It would take the heat out of it if people were required to be licensed to give that advice. I know ASIC has talked about it, but at least this would publicise it a bit more from another source. That would be how it would get settled down.
“The other thing [a review] would hopefully come out with is some statement that the majority of investments self-managed funds in property is in commercial property, not residential property, so their influence over a residential spike in prices is very unlikely.
“ASIC is saying any advice that’s given in relation to any investment of a self-managed fund requires the person to be licensed.
“But I do not think a lot of people are cognisant of that, and I do wonder if they’re taking notice of what ASIC is saying.”
