Concerns raised by the Australian Securities and Investments Commission (ASIC) about the aggressive marketing of geared property investments are shared by the SMSF Professionals' Association of Australia (SPAA), according to SPAA's senior manager, technical and policy, Jordan George.
"There is a role for gearing in a self-managed super fund (SMSF) – but only where trustees have access to best-practice advice from an adviser who is licensed and properly qualified," he said.
"In a recent speech to The Tax Institute's National Superannuation Conference, ASIC Commissioner Greg Tanzer expressed concern that some trustees were not receiving such advice, simply reinforcing what SPAA has been saying on this issue for the past year."
According to George, Tanzer said that ASIC was worried by the increasing number of SMSFs that were being targeted by unscrupulous operators.
In a broadside to those pushing the boundaries, he added that the regulator was taking a close interest in the issue and any adviser recommending an investment for the trustees of an SMSF, including property, required an Australian Financial Services Licence.
George said that SPAA had consistently maintained that the use of gearing as an investment strategy was complex and, as such, always recommended that trustees get professional advice.
"When this issue began to gather momentum last year, SPAA issued a detailed note to its members outlining the positives and negatives of gearing as a strategy," he said.
"We nailed our colours on gearing by SMSFs to the mast and haven't deviated since."
However, George added that despite the industry's increasing concerns over the issue, it was still a strategy used by only a small minority of trustees.
"In our view, talk of SMSF gearing being 'out of control' is simply not borne out by the facts," he explained.
"At June 2013, SMSF statistics show that only 0.5 per cent of SMSF investments have limited recourse borrowing arrangements, and that this investment category has grown at less than 2 per cent over the past four quarters to 30 June, 2013.
"This level of involvement has been confirmed by one of the big four banks."
Originally published by SMSF Essentials.
