SMSF advisers are failing to discuss vital issues with clients when advising them on property investment, including contingency plans when they retire and liquidity issues.
That was the observation made by a panel discussion in Sydney today hosted by the SMSF Association and ATO as part of the inaugural SMSF Week.
Investment Trends chief executive Michael Blomfield told the panel many SMSF trustees and members are beginning to approach retirement, which means discussions around transition will increase.
However, Blomfield said despite many trustees approaching retirement there is not enough talk about liquidity.
He warned ignoring whether the property cycle works for or against the trustee, or whether they have borrowed at a good price or not, will matter when they begin to monetise their superannuation.
It is then property or any other single line investment becomes problematic, he said.
“Because as I often said to people, you can’t sell your lounge room, you can’t sell your bathroom. And so what we have to do I think is find a way almost in a regulatory or a policy sense to make sure that almost no matter what happens before the age of 50 that some liquidity sensibility is brought to the way that funds are operated to protect people from a situation that looks like precipitously falling property prices,” he said.
Australian Securities and Investments Commission (ASIC) acting senior executive leader Kate Metz agreed with Blomfield, adding SMSF advisers are failing to ask clients important questions when assisting them with investing in property in their SMSF.
“So people are set up with a property, but there is no discussion, you know, what happens when you retire? Does the property need to be sold? Will you be able to live off the rental yield? What happens if property prices drop?” Metz said.
She said ASIC recently spoke to consumers about why they wanted to establish an SMSF and found the motivation for most consumers was investing in property.
“So they tended to have fairly low balances. They borrowed money. They often bought an off-the-plan property from a property developer. And so for us that rings a number of alarm bells and we think that a number of those people will not be well placed to be able to self-fund their retirement,” she said.
She reiterated ASIC will continue to scrutinise one-stop property shops where organisations help establish SMSFs for clients, find properties for them, assist them with borrowing arrangements and provide legal advice.
The “SMSF Investor Insights: Discussing key myths surrounding SMSFs” report revealed 18 per cent of SMSF trustees said they wanted to invest in property as an establishment reason.
The paper was released on the back of the inaugural SMSF Week and was sponsored by OpenInvest.
