Specialising in SMSFs

by BN26 Oct 2011

Self-managed super funds - or SMSFs - are being marketed to brokers as the next big thing for businesses looking to grow at rates in a slower credit market. So how can you get involved? We asked Chris Webley from SMSF lender Mortgage Ezy and iFinancial’s Craig Morgan – an SMSF broker - for their advice on getting into the market.

1) Are there opportunities for brokers in SMSFs?

The broker: The SMSF sector is a large sector of the superannuation market, and there has been a number of reasons for that – the onset of the GFC, and now the average Australian can borrow through their super fund to invest in property. Growth has been huge, and it will continue to grow. My gut tells me this will become a strong niche. For brokers that are thinking of developing this specialty, especially those with close relationships with accounting and financial planning practices, rolling the ball forward they may see it start to become a part of more mainstream lending, so it is lending they should be across.

How can brokers look to enter the market?

The lender: Start by looking back over existing client databases. Most brokers I know are regularly in contact with their clients and begin the process of pushing out informative correspondence which may be beneficial to clients. The reality is that many clients are open to reviewing their current situations to ascertain best fit options. Like many new-ish programs being considered for use in any business, it’s a matter of getting informed, getting comfortable with the additional requirements, and then making a decision.

The broker: We got into it just before the legal change in September 2007; we had identified it as something that was likely to be a pretty interesting niche. We created SMSF Loans – which is a specialised entity, where all our people only do SMSF lending transactions. For any broker looking to enter the market, they don’t have to offer the full range of advice, but they do need to be able to have advice-style conversations with clients and other adviers.

2) What are the advantages in doing so?

The lender: Expansion of a broker’s area of influence in their market. Not just with a broader client base - think about the extended relationships that are definitely out there to be created with financial planners and accountants. This is about incremental referrals as well. And let’s face it, the way the banks are trolling web-based offers directly to the mass market, a little return fire aimed at high-value clients could be a very opportunistic and sensible tactic.

The broker:  For the right brokers, it is a brilliant strategy to go and engage other professional groups. If they find a broker that can actually get these loans done for them it puts them up many notches in the eyes of professional partners. For us, we engaged businesses we would never have engaged around conventional lending, by demonstrating an understanding about this area. Deals such as standard residential may then be on the table which might not have been before - it's great as a door opener.

What are the pitfalls they need to watch?

The lender: Well the first thing is if a client doesn't already have an SMSF Trust established then that will take up to two months to get finalised. Another item to keep in mind is that independent financial and legal advice may be requested although that is not necessary if the client has been referred by a financial planner. So establishing relationships with qualified advisers is a very good idea.

The broker: One of the things causing ASIC concern is property groups and brokers coming to people and saying they should set up an SMSF fund to invest, when neither of these is qualified to say what they should be doing with their super. This is outside the scope of a credit licence. While brokers should have ‘advice-style’ conversations with accountants and financial planners, they can’t have those conversations with clients – that is sometimes the trap, where they tend to have them with actual borrowers.