The royal commission heard its first evidence from a customer of the bank on Thursday, with registered nurse and Westpac client Jacqueline McDowall stepping into the witness box.
Ms McDowall, whose husband is a truck driver, approached Westpac in 2015 with a plan to buy a bed and breakfast as part of her retirement plan.
On the advice of Westpac/BT planner Krish Mahadevan, who still works at the bank, the McDowalls sold their family home and transferred their $200,000 combined superannuation balance into an SMSF.
The couple also took out life, TPD and income protection insurance costing them $27,000 per year — netting Mr Mahadevan $16,000 in upfront commissions — on the assurance that they would be able to borrow “up to $2 million” to finance the B&B.
However, after finding an appropriate property in Victoria to purchase within the newly established SMSF (which was incurring administration fees from Heffron), the McDowalls discovered that they would only be able to borrow $200,000.
After rejecting two compensation offers from Westpac, the couple accepted an FOS settlement of just over $100,000. They are currently renting in the Northern Territory where Ms McDowall is once again working as a registered nurse.
Thrive Investment Finance director Samantha Bright questioned whether the Westpac adviser was qualified to provide credit advice.
“The advice provided in this scenario makes no sense,” Ms Bright told The Adviser.
“The only times when I’ve seen something so far off the mark is when someone had no idea what they were doing. No idea about what the parameters around SMSF lending are, notwithstanding this was a commercial/business transaction, which just adds another layer of complexity.”
The Queensland broker, who has extensive experience in the space, said that SMSFs are a “unique beast”.
“Not just in how you lend to one, but in all the moving parts that surround the transaction itself,” Ms Bright said. “In my opinion, you can’t move one piece without it affecting a whole other area of the customer’s financial life. These loans are not easy to unwind or restructure, are expensive and can end up not just changing the financial affairs of the customer, but their children and future generations of their family.
“Get your SMSF transaction wrong and you could end up eating Whiskas in retirement.”
Ms Bright warned that advice from an AFSL holder in an SMSF transaction isn’t just recommended but essential.
“I think you’ll find most aggregators won’t actually permit a broker to write a loan if there isn’t an AFSL holder participating somewhere. If your aggregator doesn’t have any restrictions, then set your own rules around it. Talk to the planner yourself, talk to the account[ant] yourself. Make sure that everyone is on the same page and that all the moving pieces are lining up,” the broker said.
“Don’t kid yourself that you are just funding a strategy and therefore are not responsible for it. By assisting in providing the finance, you are 100 per cent as responsible as anyone else involved.”