CBA backs protected loans for end-of-year strategies
There has been increased interest in protected loans leading into the end of the financial year, particularly with reducing superannuation contributions caps and the cash rate dropping, according to Moghseen Jadwat, head of business development, structured investments, Commonwealth Bank.
Protected loans could be of particular appeal to financial advisers with self-managed super fund (SMSF) clients as they look to act before contributions caps are reduced to $25,000. "We're having a lot of those conversations because of the caps," Jadwat said.
"It allows SMSFs to leverage."
Protected loans are suitable as an end-of-year strategy because interest (which includes the cost of protecting the loan) can be pre-paid before 30 June and is deductible in the current financial year, he said.
The strategy can improve the liquidity in the portfolio by freeing up cash, he said. For example, one client with $600,000 in direct equities exposure was able to utilise a $300,000 protected loan to maintain the same level of exposure and free up $300,000.
The drop-off in the official cash rate also meant clients who had been happy to maintain a higher level of cash and fixed interest investment were looking at protected loans as a low risk means of increasing their equity market exposure, he said.
The strategy may also appeal to clients who are carrying forward losses and who may have been using margin lending, because without some growth assets they would not be able to utilise those losses, Jadwat said.
There was a perception you needed several hundred thousand dollars to take advantage of protected loans, but the minimum loan amount is $25,000.
A client with a $100,000 portfolio could use the strategy to increase exposure to $200,000-$300,000 and still have a cashflow positive or cashflow neutral strategy, Jadwat said.
Recommended for you
Advice firms are increasing their base salaries by as much as $50k to attract talent, particularly seeking advisers with a portable book of clients, but equity offerings remain off the table.
MLC Expand has appointed retirement specialist Andrew Long to work with advisers and licensees and drive growth for its recently launched retirement solution.
Despite banks largely having exited the industry, advisers under institutional licensees are least likely to switch while 26 advisers have been appointed to a licensee more than 10 times.
Insignia Financial has shared a progress update on the acquisition by US private equity firm CC Capital as well as the departure of a long-standing director.
