Financial advisers and accountants who provide advice certificates for clients to facilitate a limited recourse borrowing arrangement (LRBA) may be in breach of theNational Consumer Credit Protection Act 2009 and as such may not be covered by their professional indemnity insurance policy for the activity.
“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,” The Fold Legal senior lawyer Lesley Thorne said.
“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.”
The advice certificate transcends factual information as it confirms the SMSF trustee has been provided advice about the suitability of the loan, the ability for repayments to be made, the associated risks, the impact of the loan and the general terms of the loan.
Thorne said breaching the National Consumer Credit Protection Act 2009 became a real problem for accountants and financial planners when the SMSF trustees were individuals.
“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 explained.
“This means that a loan provided to SMSF trustees who are individuals intending to purchase or renovate property will be consumer credit.”
When asked to sign an advice certificate, she suggested accountants and advisers needed to read the certificate properly to understand what they were being asked to certify and should not certify that they had provided advice they were not authorised or qualified to provide or had not in fact provided.
In addition, advisers and accountants should delete sections of the certificate pertaining to anything other than factual information, and should not certify the serviceability of the loan in those circumstances.
While providing an advice certificate for an LRBA was less troublesome where an SMSF had a corporate trustee, Thorne warned there could still be professional indemnity issues for accountants who were not licensed to provide financial advice.
