The SMSF Professionals’ Association of Australian (SPAA) has added its voice to growing concerns about self managed super funds using a limited recourse borrowing arrangement.
SPAA Education and Professional Standards Director Graeme Colley says: “There is a place for gearing strategies to help people grow their retirement savings, but it’s imperative they understand 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.”
Mr Colley says SPAA’s strong position on limited recourse borrowing – it issued a fact sheet detailing the risks late last year – means it fully supports the Federal Government’s move to change the Corporations Regulations to have these borrowing 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.”
He says SPAA’s only major point of difference with the Government’s proposed changes is to not treat limited recourse borrowings in the same way as a derivative.
“SPAA contends that the value of a derivative is based is obtained from the underlying asset, such as options over shares, which is a quite different arrangement to a debt facility that has be organised to buy an asset for a superannuation fund.”