In an article for the website Smart Company, Cara Waters discusses the guidelines that have been attached to the Limited Recourse Borrowing Arrangements (LBRA) being used by the SMSFs. The SMSF Professionals’ Association of Australia (SPAA) has come up with these guidelines to ensure that LBRAs are used in an appropriate manner.
NAB signs an agreement with the SPAA
Australia’s major banks have roughly 85% control over LBRA lendings, and the fact that NBA, one of the real big banks, has signed an adherence agreement with the SPAA means a lot. The concerns were real and in an environment where a few rogue spruikers had suddenly become very prominent, LRBA could become a dangerous weapon for the country’s economy.
Two guidelines provided by the SPAA
The guidelines suggested by the SPRA are 1) LBRA lenders’ best practice guidelines and 2) LBRA advice best practice guidelines. They are expected to facilitate effective regulation of the SMSF lending environment — applicable to both the advisers and the lenders.
High leverage not a concern for the SMSF
Certain SMSF borrowers who have heavy leveraging on mind may miss out on availing the LBRA loans, but this won’t deter the SPAA. High leverage ambitions are not their concern till the time they can cater to suitable gearing levels.
The mainstream Super funds are shielded by the Australian Prudential Regulation Authority, but the same cannot be said for DIY Superannuation strategy, the SMSF. So while the SMSF has its own set of advantages, trustees suffering due to their financial illiteracy cannot be ruled out.
You can read the original article here.
Spruikers must be kept at bay
In my opinion, the best practise guidelines will restore some sanity into the high-risk environment created by spruikers. SMSF is a relatively new thing. The kind of flexibility and control it offers is inarguably great, but trouble can brew so easily, too. After all, we are talking about trustees who may be swept by some spruiker with a vested interest. So if the trustees do not have their personal think-tanks, they can be persuaded towards farce investments or borrowings.
Already, there is talk about property promoters and real estate agents asking investors to push in the funds from their existing SMSFs into the property market. At other times, they are cajoling the investors to create a new SMSF altogether for the purpose.
Are these promoters and agents accredited to the Australian Financial Service? A majority of them aren’t and are not eligible to offer SMSF advice at all. Things could go wrong. You just need to look at Charterhill and you will figure it out. I am all for the best practise guidelines.
Do you think there should be stiff penalties for agents advising SMSF without the AFS license?