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Self-managed super funds (SMSFs) have exploded in popularity and savvy brokers can expect myriad benefits from writing SMSF-related products
Self-managed super funds occupy an increasingly prominent position in the range of wealth creation tools available to clients who are building a retirement strategy.
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Ten years ago, SMSFs represented 10 per cent of super accounts; following a dramatic rise, that figure has increased to 30 per cent, according to Liberty Financial’s general manager, Suresh Pillai.
But not only has the sector seen major organic growth, SMSFs have also tapped into Australians’ propensity for property investment. “If you put the two trends together – the growth in SMSFs and their preference to invest in property – you’ve got a sweet spot for a product,” says Mr Pillai.
“You’ve got an area where there is a lot of public interest and you’ve got the opportunity, as a broker, to provide education on something that a lot of clients wouldn’t be aware of.”
According to MKM Capital’s Michael Watson, residential SMSF products allow people to align their super with an asset class with which they are very comfortable, drawing on their funds to purchase investment properties.
“Consumers may be wary of soft, paper-based wealth building instruments in the wake of well publicised losses in recent years,” he says. “Australians generally are comfortable with residential property investment, making tangible, bricks and mortar-type assets particularly appealing.”
Benefits for brokers
There are two primary benefits for brokers who write SMSF products, according to RESIMAC chief operating officer, Allan Savins.
“The primary benefits for brokers who write SMSF products are diversification and incremental growth through new products, and the ability to satisfy their clients who are looking for this type of borrowing with growing awareness of these products being available,” Mr Savin says.
Applicants with a long-term view to wealth will usually seek long-term partnerships with advisers they trust.
“SMSF investors are likely to bring further business to a broker,” he says. “They are likely to have strong and regular income, a proactive approach to wealth building, and [are likely to] invest in property, both personally [and] in addition to their superannuation fund.”
The risk of responsibility
While writing SMSF loans offers many benefits to a broker’s business, as with all market segments there are risks involved. The key consideration associated with SMSF lending, according to Mr Pillai, is being careful about what you can and cannot advise upon.
“Ultimately this is a product that involves people’s super, their retirement, their future,” he says. “It is imperative that you have a consultant such as a financial adviser involved to provide the customer with the proper advice to do with investments.
“I think for brokers playing in this space, it’s critical to know that their role is to provide information and education on the credit side of things, and leave the investment side to [investment] professionals.”
Mr Pillai adds that nevertheless, SMSF loans should not be difficult to write.
“I believe the presence of support structures means that any transaction should really not be that difficult for a broker,” he explains. “There are new issues to be aware of and new structures to consider, but ultimately it’s a derivative of a residential mortgage loan and there is a lot of support there.”
Mr Savins adds that it is important to understand the borrowing and compliance rules to ensure you are doing the right thing by your borrower.
“These products are relatively new, they are different to the standard products available today, so brokers should take time to understand the benefits and risks associated,” he says. “All lenders – along with RESIMAC – provide training and Q&As on how to write these products.”
An expanding sector
SMSFs are expected to see continuing growth as the products gain even greater popularity.
“There are an ever-increasing number of Australians looking for greater control and value from their superannuation, Mr Savins says, explaining that the effects of the global financial crisis encouraged many Australians to take on a greater role in managing their own superannuation.
“Australians continue to have a love affair with residential property, so these products are quickly becoming the retirement investment vehicle of choice,” he says.
According to Mr Pillai, the growth of SMSFs has exceeded brokers’ expectations in the past 24 months. “I see this as an area that will continue to grab the attention of the public,” he says.
