The Mortgage and Finance Association of Australia (MFAA) has expressed concern that the Government’s proposed amendments to limited recourse borrowing arrangements (LRBAs) create confusion between the role of finance brokers and financial advisers engaged in the borrowing process.
In its submission to Treasury on the ‘Corporations Amendment Regulation – Limited Recourse Borrowings by Superannuation Funds (Instalment Warrants)’, the MFAA stated that there is a lack of recognition that entering a LRBA is a two-stage process.
The first process in acquiring an asset under a limited recourse loan is for the SMSF to seek specialist advice on the loan. Following this process, "the SMSF must source the appropriate loan for their needs", the submission said.
While finance brokers are experts in sourcing appropriate loans for clients, the MFAA stated that most major finance brokers and aggregator groups make it clear that their brokers can only assist an SMSF to find a loan, and that they are prohibited from providing financial advice about the impact of investing in a particular property (unless they hold an Australian financial services licence).
While the MFAA stated that it was aware that the government did not intend to regulate "persons merely providing credit to SMSFs", the submission said that the proposed draft regulations did not make this clear, and that it should be rectified to clearly distinguish the role of an adviser and a broker in a LRBA.
The submission also said the draft regulations also fail to determine whether the amendments will in fact apply to a limited recourse loan structure or an instalment warrant structure, which the MFAA said are both different borrowing structures, the latter involving an upfront payment to the issuer.
The MFAA added that it understands the Government’s desire to provide a legislative framework that will protect consumers, but has urged policy makers to give recent financial services reforms – including the Future of Financial Advice changes – time to have an impact on the industry before introducing further changes.
