Have SMSFs become the target of property spruikers?

I read with great interest recently in the Australian newspaper, an article titled “Setting up an SMSF to buy property a risky strategy” (13 November 2012) regarding ASIC commissioners Peter Kell and Greg Tanzer focusing a taskforce on aggressive marketing of speculative property developments with SMSF limited recourse borrowing arrangements.

Whilst there appears to be a lot of ‘hype’ around SMSF borrowing arrangements, it has highlighted the lack of a Government response to introducing these arrangements into the financial services licensing regime.  It was June 2010 when Treasury released its first consultative paper around licensing and bringing these arrangements under the financial consumer protection framework.  A further consultation occurred in February 2012 and now nearly two and a half years later the industry is still waiting.   The consensus from submissions generally supported bringing these rules into the licensing framework to avoid the situations highlighted in the newspaper article.

So to the Regulators, I commend you in targeting those looking to make a quick buck from consumers with borrowing in super, but let’s get a regulatory framework in place to ensure we have the right licensing framework and regulatory protections.  I just hope this doesn’t put a nail in the coffin for the use of SMSF limited recourse borrowing arrangements…  I kind of believe the framework around the legislative definitions and operation of such arrangements was heading down the right track!

Do you think SMSF borrowing will be hear to stay?




  1. Property sellers will target anyone with money and often those without. Problem with current arrangement is that SMSF trustees do not have to obtain independent advice to enter into what is a complex arrangement and given the relatively low level of knowledge of many trustees, some will get burned.

    I personally don’t agree that you should be able to borrow in a SMSF, however, as you can, then suitable protections need to be in place eg independent legal or financial advice or both, should be mandatory and some of the more grey borrowing arrangements banned eg borrowing from non-arms length parties.

    • Hi Jenni,

      Thanks for your comments. Whilst Treasury hasn’t progressed the need to bring these arrangements into the financial consumer protection landscape, at least some of the financial institutions have built the need to obtain the necessary advice (financial & legal sign-off) into their banking policy. I’m sure it won’t be long before there will be cries of SMSF trustees being “burnt” through a property scheme, but unfortunately, it is typically the small minority that tend to ruin it for those that work within the regulatory guidelines and ‘spirit’ of the law.

      I think with an appropriate framework, ASIC would be able to go very aggressively into the space to ensure ‘promoters’ were complying with the legislative overlay. Too much focus is spent on the benefits, without a balanced conversation about the risks (there’s a future blog post). I’m not against the use of borrowing in super, but right person, right strategy… the ‘industry noise’ is suggesting that opportunism may be starting to take over!


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