Increased attention on aggressive marketing for property borrowing within SMSFs has the industry considering whether further licensing is necessary in order to safeguard trustees.
Institute of Public Accountants executive general manager Vicki Stylianou said the area was highly complicated for SMSF trustees and presented many traps without the right advice.
“One issue that’s been getting quite a lot of attention, from ASIC as well, is around property developers and those promoting property borrowing within SMSFs, and it’s certainly something that we need to look at,” Stylianou told selfmanagedsuper.
“This is an interesting policy debate, especially post-election, [where we must question] whether that advice around property buying into SMSFs is something that should be licensed.
“That includes real estate agents, property developers, et cetera all promoting this too. Also the banks are tightening up on their borrowing ratios, is that enough?”
ASIC first raised the issue in April at the CPA Australia SMSF Conference, with then commissioner Peter Kell announcing the corporate regulator would ramp up its attention on geared investment strategies associated with aggressive advertising targeted at SMSFs.
“We believe that many of them don’t appreciate that they have to be licensed if they’re advising on investing in property through an SMSF and that the rules around appropriate conduct and advice apply to them in this environment,” Kell said at the time.
Stylianou said while she had not seen any evidence of market failure to date, she had concerns around it becoming a “time bomb waiting to happen”.
“Are we doing enough within [this area] or is it likely to be something that’s going to explode and lead to a lot of tears?” she said.
“So far within our membership no scary stories have been brought to our attention, so I think this [approach] might be one of prevention.
“The government has been trying to move ahead of any market failure, as [evidenced] by FOFA (Future of Financial Advice), so should the advice for borrowing within SMSFs come under FOFA? Some people think it should.”
However, introducing licensing requirements for property providers in the wider industry could be problematic, she said.
“I would imagine it would be, just going purely off the difficulties for accountants or financial planners going into the tax regime,” she said.
“If it was at that level it would be quite onerous and would mean more regulation, more compliance and also they’re going to have to pay for it, so we would have to take a really good look as to how it could be done.
“Certainly since SMSFs were able to borrow to buy property into the fund, there’s been a lot more players [involved].”
She said the policy debate was really a case of protecting consumers and providing them with the best possible outcomes without hindering market forces.
“I’m hesitant to say that there should be more regulation or more licensing,” she said.
“Between all the market players, ASIC and even the Australian Taxation Office all onto it, it may be the case that this will be enough.
“I would expect that the good players out there will be taking heed.”
In September last year, ASIC created an SMSF taskforce, which will continue its crackdown on SMSF property borrowing as one of its main priorities.
