Consumer protection answer to LRBA risk

smsf association lrbas limited recourse borrowing arrangements John Maroney ASIC australian securities and investments commission productivity commission

1 February 2019
| By Hannah Wootton |
image
image
expand image

The SMSF Association has reiterated its opposition to any outright ban on limited recourse borrowing arrangements (LRBAs), saying that they benefit small business owners and calling instead for an increase in consumer protection for the debt instrument.

In a submission to Treasury for the Council of Financial Regulators’ review of LRBAs, the Association said that rather than creating “systemic risk” for the superannuation sector, LRBAs allowed small business owners to transfer business real property which was crucial to their retirement plans.

SMSF Association chief executive, John Maroney, said that banning the use of personal guarantees supporting LRBAs would help mitigate the risks associated with them and also limit the ability of property spruikers to use the instruments as a vehicle for promoting speculative property investments.

“Personal guarantees given by SMSF trustees do allow the SMSF to undertake larger borrowings with higher LVR ratios. So … prohibiting SMSF members from providing a personal guarantee for their borrowings would make it more difficult for lenders to make risky, high LVR borrowings to SMSFs,” he said.

“Lenders would also need to be certain that the SMSF is able to adequately service the loan based on the financial circumstances of the SMSF members within the superannuation system instead of looking at circumstances and assets outside superannuation.”

Maroney believed that this measure would also reduce LRBAs encouraging individuals to establish SMSFs with a small balance just to buy property.

Another consumer protection that could help manage the risks of LRBAs could be the introduction of a mandatory specialist qualification for giving advice on SMSFs, a call echoing similar ones by the Australian Securities and Investments Commission (ASIC) and Productivity Commission.

“Tightening licensing requirements around LRBA advice and increased scrutiny of this type of advice could assist in ensuring the integrity of LRBAs,” Maroney said.

Read more about:

AUTHOR

Recommended for you

sub-bgsidebar subscription

Never miss the latest news and developments in wealth management industry

MARKET INSIGHTS

This verdict highlights something deeply wrong and rotten at the heart of the FSCP. We are witnessing a heavy-handed, op...

49 minutes ago

Interesting. Would be good to know the details of the StrategyOne deal....

4 days 5 hours ago

It’s astonishing to see the FAAA now pushing for more advisers by courting "career changers" and international recruits,...

3 weeks 2 days ago

Insignia Financial has made four appointments, including three who have joined from TAL, to lead strategy and innovation in its retirement solutions for the MLC brand....

2 weeks 4 days ago

A former Brisbane financial adviser has been charged with 26 counts of dishonest conduct regarding a failure to disclose he would receive substantial commission payments ...

3 days 3 hours ago

Pinnacle Investment Management has announced it will acquire strategic interests in two international fund managers for $142 million....

2 days 6 hours ago