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LRBA uptick in SMSFs a concern

The SMSF Association has expressed concern over the increase in the number of limited recourse borrowing arrangements (LRBA) within SMSFs over the past two to three years.

Speaking at an SMSF policy outlook session at the SMSF Association 2018 National Conference in Sydney today, association head of policy Jordan George said almost 10 per cent of SMSFs now had LRBAs in their funds, up from 5 per cent two to three years ago.

“They’re not necessarily wrong if LRBAs are being used appropriately and are advised and there’s a good strategy behind it. That’s okay,” George told delegates.

“But I think we need a little bit more research into why that number has increased over that time period.”

In terms of asset allocation among SMSFs, he said commercial property comprised 11 per cent and had grown in the past 10 years, while residential property comprised 4 per cent.

LRBAs made up 4 per cent of the asset allocation pie chart, with an even split of LRBA investment between residential and commercial property.

“So when you hear in the media that SMSFs are using LRBAs to pour into residential property, the stats do not pad that out,” George said.

Listed shares comprised 29.4 per cent of SMSF asset allocations, while 26 per cent to 27 per cent was invested in cash.

“One thing we think around asset allocation, SMSFs need to be thinking more about diversification. Many trustees or many members are not diversified enough,” George noted.

SMSFs in Australia lacked access to different sectors, with a scarcity of technology stocks in the Australian Securities Exchange top 20 stocks, which were dominated by miners, banks and grocery companies, he said.

He also advised SMSFs to consider lifting investment in alternative assets such as fixed income as more Australians headed into retirement.

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