All parties, particularly lenders, involved in the limited recourse borrowing arrangement (LRBA) process for SMSFs should be made to hold specific designations, separate to the qualifications already available in the industry, an industry aggregator has said.
“[SMSF borrowing] is specialised lending, so I don’t think every man and their dog should be allowed to write SMSF lending,” Outsource Financial chief executive Tanya Sale told selfmanagedsuper.
“There should be a special accreditation for it going forward because you’re dealing with someone’s super.
“That’s one thing I’m in favour of.”
Sale said understanding the complexities of SMSF borrowing in-depth would help avoid future blow-ups.
“When [lending] first came about, the SMSF borrowing loan-to-value ratio (LVR) was in line with commercial transactions, so about 65 per cent to 70 per cent,” she said.
“It should’ve remained there, but then lenders allowed it to go to 75 per cent, 80 per cent and beyond because there was such a massive opportunity and demand from SMSFs, but it should never have gotten that far.
“Then the unrest became known because it wasn’t done properly, so now we have a big opportunity to put the LVR back to where it should be; where it was designed to be.
“That’s where we went wrong in our industry – the lenders allowed anyone to be a creditor.”
Commenting on the current environment, she said she had seen examples of high-quality borrowing specialists in the industry, including advisers and lenders.
“For them, it’s been all about the client,” she said.
“With some lenders what they’ve done is pass on borrowing cases outside the realms of normal, general lending over to their SMSF lending specialist within the lender.
“I take my hat off to those that have done it really well because they’ve put it to the side to deal with it separately.”
While a potential ban on LRBAs by the government was still a possibility, she said she did not think it would go ahead as it was too bold a move.
“The government tends to have a knee-jerk reaction, but there’s just no need for it, so we need to get the people in the industry involved that want to do the right thing and have a great SMSF borrowing process,” she said.
“Instead, I think the government will question the lenders about what they’re doing with their credit policy.
“The lenders who want to do this piece well are looking at their credit policy right now and know their credit policy, but they’re also waiting for guidance from this government.”
Outsource Financial is an independent boutique aggregator group for the professional services sector.
