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PREMIUM While qualifications are needed to provide self-managed super fund advice, these don’t apply to brokers writing SMSF loans. But should they? Annie Kane explores.
In a recent interview with The Adviser, Mark Kevin, broker principal at Mortgage Advice Bureau Sydney, suggested there was a growing need for improved education and accreditation standards in the self-managed super fund (SMSF) loan writing sector.
Speaking on the Elite Broker podcast last week, Mr Kevin elaborated that while there are more lenders and brokers looking to write SMSF loans given growing demand, he raised concerns relating to the low entry barriers into the field given the complexity of SMSF financial matters.
For example, he flagged that someone could become a broker from outside of industry by completing a cert IV in mortgage and finance broking and then undertaking a “light touch” accreditation process with the lenders on their aggregator panel before offering SMSF loans.
Mr Kevin explained: “It could be as little as nothing for some of the aggregators, or it might be a couple of questions, or a half an hour webinar … And then they can be writing and advising clients on credit decisions within the superannuation environment, which has SIS Act (Superannuation Industry [Supervision] Act 1994) overlay, a tax overlay etc…
“For me, it’s a risk to the industry, it’s a risk to the superannuation industry, and equally to the clients that are engaging those brokers without the educational experience behind them ... Because, if you’re getting that wrong, that’s people’s superannuation, that’s their retirement.”
Mr Kevin said that the “consequences of getting it wrong” could be material, as a lost deposit of $70,000 from a 40-year-old’s superannuation could result in the loss of 20 years of compound interest.
“That’s $500,000 or thereabouts in 20 years’ time,” he said. “That’s material.”
What is the solution?
To address the issue, Mr Kevin believes there should be a specialist broker accreditation specifically focused on SMSF lending.
He has suggested the industry could collaborate with the SMSF industry – such as the SMSF Association – to create a specialist accreditation for brokers to ensure that brokers possess the necessary education, skills, and experience to provide reliable and informed advice in the SMSF space, he said.
By obtaining specialist SMSF accreditation, brokers could also then differentiate themselves in the market and attract clients seeking knowledgeable professionals.
When approached by The Adviser regarding its appetite for creating a broker-specific SMSF accreditation, the chief executive of the SMSF Association, Peter Burgess, stated that it “did not offer a specific mortgage broker accreditation” as it currently has an SMSF Specialist Advisor (SSA®) accreditation program that “is open to all professions, including mortgage brokers”.
The SSA® accreditation aims to provide evidence of a practitioner’s knowledge across a range of essential and specialist SMSF knowledge areas, including education about compliant SMSF trustee borrowing arrangements such as LRBAs.
“It is also evidence of their commitment to ongoing professional development and maintaining their SMSF knowledge,” he said.
Mr Burgess told The Adviser: “A number of mortgage brokers have completed this program to hold the SSA® designation [including Mark Kevin] and we certainly remain open to working with the mortgage broking associations to facilitate this on a wider basis.
“The SMSF Association is committed to raising competency standards in the SMSF sector and is happy to work with any profession that provides advice or services to SMSF trustees.
“For clients contemplating or entering into an SMSF borrowing arrangement, it is important they have access to a licensed professional who has the competencies to provide specialist SMSF advice.”
Peter White AM, the managing director of the Finance Brokers Association of Australia (FBAA), told The Adviser that the FBAA “would be happy to work with the SMSF Association” but added that “no one has reached out to us at this stage, and no brokers have approached us, to date”.
“If we believe it is appropriate, we would consider looking at a path towards accreditation, however, we would also consider specialist training for brokers that is fit for purpose in this area,” Mr White said.
“When brokers are going into specialist areas we strongly support the need to ensure people undertake professional education in that specific area. SMSF is one where another level of knowledge is required and appropriate to ensure the best guidance possible is given to people utilising self-managed super fund structures for lending purposes.”
Aggregators boosting training
Several aggregators have also been noting the recent popularity of SMSF loans, with aggregator Connective recently urging brokers to use their network of referral partner experts and engage in targeted training to upskill.
“With close to $18 billion of SMSF debt being actively refinanced out of major banks, brokers have to ensure they are up to speed with the nuances and complexity of an SMSF loan and that they have effective referral networks working for them,” the aggregator said.
“SMSFs make up over 25 per cent of the $3.5 trillion sector and the demand for non-bank lending solutions for this massive pool of investments is rising.”
Michael Goerner, head of Connective Home Loans, added: “SMSFs are a huge opportunity for brokers – but it will require many brokers to adjust their usual BD approach…
“Maximising the SMSF opportunity relies on knowing your role as a broker versus financial planners, accountants, and SMSF trustees and leveraging a network of these partners to identify clients and deliver the best experience.
“LRBAs are a complex market with rules varying from state to state. Brokers should also be upskilling on SMSFs and understanding lending solutions for their clients.”
Indeed, in a recent webinar on SMSF lending hosted by Connective Home Loans, brokers were reminded they should not provide an opinion in relation to the appropriateness of an SMSF or a specific property.
The webinar went through key rules brokers should be across, such as the fact that SMSFs can only borrow a single acquirable asset through LRBAs and that when refinancing, the loan can be increased to fund costs directly related to the refinance. However, there is no opportunity to increase the loan for cash-out purposes.
Mr Goerner said that brokers also need a team of product experts around them to ensure quality service for clients through the entire process.
“The SMSF opportunity for brokers will continue to grow for a long time. Based on what we’re seeing and our insights, we’re encouraging brokers to deepen relationships with their referral network and ensure clarity on the role and value for everyone and ensure you have a team around you that can provide specialised advice and products in addition to quick turnarounds and efficient processes in this niche market,” he concluded.
During the webinar, Connective provided the following tips for brokers looking to write SMSF loans:
- Educate clients on refinancing options: Highlight to your clients the benefits of exploring alternative lenders for refinancing their SMSF lending or LRBA and the potential to reduce interest costs, often up to 30 per cent.
- Stay updated on refinancing opportunities in the market: During the fact-find process, ask if there are any other trust loans, company loans, or SMSF loans. Many SMSF trustees remain unaware of the existing refinance options or overlook the importance of an SMSF loan.
- Complete full set-up of the SMSF before purchasing: Ensure the client’s SMSF is established with their superannuation funds to pay the property deposit. Providing evidence of the deposit payment from the SMSF is important for stamp duty requirements when transferring the property into SMSF upon loan repayment.
- Maintain ATO rule compliance and say ‘No’ to offsetting in SMSF Loan: Until the ATO confirms SMSF loans can have an offset, the safest approach is to avoid it.
- Emphasise the value and importance of maintaining equity: Educate your clients about the requirement of maintaining a minimum of 10 per cent equity in relation to their SMSF’s total borrowings. Explain the reasons behind this rule and its significance in mitigating risk.
What do you think? Do you think there should be an additional accreditation for brokers wishing to write SMSF loans? Let us know in the comments below!
[Related: How Mark Kevin is building a profitable, scalable brokerage]
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