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One prominent financial planner has called on ASIC to take “urgent action” against brokers who abuse SMSF finance.
John Hewison, who is the managing director of Hewison Private Wealth and the former chairman of the Financial Planning Association of Australia, said some brokers and property spruikers are showing “complete disregard” for the individual circumstances of each investor.
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He said that while using superannuation to borrow can be an appropriate investment strategy for some high-net-worth individuals, investors are at risk from brokers and spruikers who want to capitalise on the “lucrative” revenue stream.
“Younger investors with minimal account balances are being encouraged to borrow large amounts of money in order to buy properties in their super funds,” he said.
“Further, middle-aged individuals, who should be risk averse and preparing for retirement income streams, are also being led down the path of gearing property.”
The latest figures from the Australian Taxation Office reveal that assets held by SMSFs using limited recourse borrowing arrangements (LRBAs) have increased to $8.7 billion as at June 2014.
LRBAs are suitable for individuals who incorporate the structure into their strategy without compromising the sole purpose test, Mr Hewison stressed.
They must also maintain appropriate levels of liquidity and flexibility and incorporate a legitimate debt reduction program, he added.
“However, as history has repeatedly shown, legitimate investments are compromised by a select number of operators who abuse the system and cause havoc for investors,” he said.
[Related: Choose your friends wisely when dealing with an SMSF]
