Poorly trained SMSF brokers risk 'spoiling the broth' for the majority

by Mackenzie McCarty21 Jan 2013

Drawing comparisons between the APRA’s letter to approved ADI’s last week and recent ATO comments is ‘overkill’, says one SMSF broker – but it still serves as futher warning to inexperienced brokers dabbling in SMSF loans.

In the APRA letter, the authority says that, for the purposes of its capital adequacy standard, APS 112, SMSF loans are "relatively more complex" than standard mortgages.

"As such, SMSF loans may have a different and potentially higher loss profile in comparison to standard loans.”

But SuperShift principal Nic Ellis says most participating parties are already fully aware of LRBA issues.

“It should be very clear that lenders have already categorised these limited recourse loans as non-standard and they have been risk-weighted as the end rate to customer is higher than standard loans by approximately 0.3%-0.5%.”

However, Ellis says it’s important for mortgage brokers to remember those who aren’t fully trained in SMSF’s should use the ‘spot and refer model’ in order to be able to participate compliantly.

“[They should be] referring their clients…to the experts to have suitable advice provided in the first instance under the planner’s or their dealer group’s AFSL.  In reality and practice this will lead to better and more profitable business for these brokers who choose to participate in this logical way.  Failure from brokers to grasp the extra compliance issues associated with SMSF loans will create extra regulatory compliance from APRA, ATO and ASIC and perhaps even ‘spoil the broth’ for the disadvantage of the bulk of the good guys.”

Ellis says the higher rates charged to consumers with LRBA mean lenders receive more income for these loans, as they must hold more capital to fund them, based on the fact that they’re limited recourse.

“We all do agree with APRA on this point.   Lenders have also done their homework in assessing serviceability for these loans to ensure they  are responsible by ensuring that the SMSF will not be placed in hardship after the loan is granted, considering the running costs of the structure needed. This is embedded in most/all lenders mechanism of servicing and understood by good SMSF/SuperShift advisors in this area.”


  • by anon 21/01/2013 10:29:00 AM

    Absolutely agree, we are currently assisting a client who thought they would save money and went to an ill-informed mortgage broker without financial planning advice.
    The end result is a client that is looking at a $10,000 stamp duty bill for putting the property in the wrong name and additional financial planning costs as they try to untangle the mess. The banks need to take more responsibility in checking that client taking out these loans have received the appropriate advice.

  • by Country Broker 21/01/2013 11:03:08 AM

    Agree, we work with a group of financial planners and accountants. If a client comes to us and wants a loan for a SMSF , the first thing i we ask is have you had advice on the SMSF buying property and al loan on it? If have not we will refer them straight back to the planner .

  • by Barrie Sutton 21/01/2013 11:34:10 AM

    The loan must be via the trustee who must hold the freehold and you must borrow at first all the funds you need. Watch if there is more than one title each title needs a seperate laon.