SMSFs drive demand for gearing
Gearing now plays a greater role in the wealth creation process for SMSF trustees, according to head of business development for structured investments at the Commonwealth Bank, Moghseen Jadwat.
Jadwat said the rapidly increasing growth of the SMSF market and limitations around superannuation contributions are driving demand for protected lending, which provides a conservative gearing strategy.
A protected investment loan provides clients with up to 100 per cent of the amount invested, keeping the profits if the share value goes up.
"Employing a conservative gearing strategy under a protected loan can result in an SMSF gaining double the exposure of their super contribution," Jadwat said.
"Generally, an SMSF will get a net tax benefit from a protected loan … this is in addition to the enhanced exposure and potential returns," he added.
A recent survey of financial advisers conducted by Commonwealth Bank found that advisers are seeking flexible solutions for growing wealth, particularly in the low tax environment afforded to SMSFs.
The Australian Prudential Regulation Authority recently estimated total superannuation assets in Australia stood at $1.3 trillion, of which SMSFs account for 30.6 per cent.
Commonwealth Bank said it was expected that the growth of SMSFs would continue "to the point where they may represent a bigger sector than industry funds or retail super".
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