Association offers alternative to SMSF lending ban

The SMSF Association (SMSFA) has urged the government to consider a range of alternatives to a ban on limited recourse borrowing arrangements (LRBAs), including limiting the use of personal guarantees.

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 Australian Financial Services Licence (AFSL) regime, a view that 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.

 

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