Advisers and accountants completing SMSF lenders advice certificates may be breaching the law

Lesley Thorne

Financial advisers and accountants who provide certificates for limited recourse borrowing arrangements may inadvertently provide credit advice in breach of the National Consumer Credit Protection Act 2009 and for which they may not be insured. 

Senior lawyer at The Fold Legal (The Fold), Lesley Thorne says SMSF clients seeking to enter a limited recourse borrowing arrangement are frequently asking their adviser or accountant to complete a certificate from the lender in order to confirm they have advised the client about the terms, risks, impact or effect of the loan, as well as its suitability for them and their ability to meet repayments. 

“Unless the adviser or accountant holds an Australian Credit Licence or is a Credit Representative of a licensee, it is an offence to provide ‘credit assistance’ or ‘act as an intermediary’ in relation to consumer credit,” Ms Thorne says. “This means that if the client’s loan is consumer credit and the adviser or accountant isn’t licensed or authorised, they can only provide the client and their lender with factual information.” 

Ms Thorne says where the trustees of an SMSF are individuals, a limited recourse borrowing arrangement will be consumer credit if it is to purchase, renovate or improve residential property for investment purposes. “Because the objective of an SMSF is to provide retirement funds for members, a property purchase or renovation by the SMSF will always be for investment purposes,” she says. “This means that a loan provided to SMSF trustees who are individuals intending to purchase/renovate property will be consumer credit.” 

Where a loan is to purchase a different type of asset or the SMSF has a corporate trustee it won’t be considered consumer credit, Ms Thorne says. “Advisers and accountants still need to be wary in this area though as providing advice on the loan or a certificate to the lender could still overstep their professional boundaries, leaving them vulnerable to claims by a client or a lender that aren’t covered by their professional indemnity insurance.” 

Ms Thorne’s tips for advisers and accountants when they are asked to provide an advice certificate for a client are:

• Do read the certificate carefully – understand what you are being ask to certify
• Don’t certify that you have provided advice that you are not authorised or qualified to provide, or haven’t in fact provided
• Don’t provide certification as to the suitability of a loan or a client’s ability to repay it – it is the lender’s responsibility to assess this
• Do strike through any sections that contain anything other than factual information 

Ms Thorne says it is a complex area, so if in doubt, advisers and accountants should speak to their compliance officer or seek legal advice.