Only planners should advise on LRBAs: SPAA
The SMSF Professionals' Association of Australia (SPAA) has come out in support of the Government's move to label limited recourse borrowing arrangements (LRBAs) as a financial product.
The change would mean only fully-licensed financial planners would be able to provide advice on these arrangements, according to SPAA director for education and professional standards Graeme Colley.
Colley said while there was a place for gearing strategies to help people grow their retirement savings, it was equally important they understood the risks involved before going down this path.
"People have to understand that a limited recourse borrowing arrangement that doesn't comply with government regulations can have serious financial consequences for trustees," he added.
SPAA's position came amid the industry's growing concerns about self-managed super funds using LRBAs.
This is why SPAA fully supports the Federal Government's move to change corporate regulations to have these arrangements designated a financial product.
"If this change can be implemented, it will mean that only professionals licensed to provide financial advice can advise on limited recourse borrowing arrangements, and they will be required to consider a client's complete financial circumstances, not just those that relate to the borrowing arrangement in isolation," Colley said.
However, SPAA does not support the Government's proposal to treat LRBAs as derivatives.
"SPAA contends that the value of a derivative is obtained from the underlying asset, such as options over shares, which is a quite different arrangement to a debt facility that has to be organised to buy an asset for a superannuation fund," Colley added.
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