From today's SMH - spruikers watch out
ASIC warns Real Estate Agents on SMSFs
- Thread starter Scott No Mates
- Start date
My broker- possibly following bank rules- requires a financial advisor to sign off approval for property purchase before going ahead to arrange a loan. That may be difficult when many advisors don't suggest direct property purchase. That may because of the "eggs in one basket", or it may be because they are much more comfortable with other investment types, where, until recently, the were able to draw commissions.
Its a very fine line. Brokers have to be very careful because they are setting up the loan for a financial product. Accountants have an exemption under the corporations regulations, but I think this is only for matters on the edge of a SMSF transaction - same with lawyers. They cannot advise a person to set up a SMSF or open a bank account or do a xx strategy etc unless they hold a AFSL.
Its all very murky. That is why I am thinking about getting my own licence - or authorised rep status, but it will cost around $15k per year.
Its all very murky. That is why I am thinking about getting my own licence - or authorised rep status, but it will cost around $15k per year.
Get another bank / broker . Been their , done that . Most don't want it now . Expensive waste of time. Felt quite cheated by the whole process , but it was three years ago when they were uncommon.
Geoff if you want a broker who does a fair bit of SMSF pm me .
Cliff
That's cool thanks Cliff. We are in the process of seeing the FP anyway. I need the advice more in terms of how to structure everything else. I'm very comfortable with the smsf structure- and surprisingly for me, so is my wife. But there's a number of other matters where I do need the advice.
This is an interesting one.
I am all for Australians using their SMSF to purchase property, either through cash or an LRBA.
The key to this process or decision is 'education' of the client.
There are many parties in the process they include:
- SMSF Administrator (for instance Redwood Advisory) who set up the SMSF and set up the bare trust. We donot have referrals from real estate agents and find that many of our clients have done the research up front and come to us with their ideal structure and do understand the risk and benefits of the structure. We spend an hour detailing structure and the risks and benefits prior to establishing both the SMSF and the bare trust.
- Bank: they set up the loan, they donot advise on structure just facilitate the loan process (for our clients we usually refer to a trusted broker/ bank manager). Most banks require a financial advice certificate
- There may or may not be a property agent involved
- Conveyancer: donot issue advice, but support the loan process
- Lawyers review the agreements
Alot of parties like to wash their hands of the 'risks', however, my firm ensures the process is understood by the client up front including the up front costs involved.
In summary, even if a real estate agent reccomends an SMSF its up to the parties above to educate the client.
There is so much press about SMSF Property and the spruikers, however, i'd just like to weed out the spruikers that give our industry a bad name and focus on the education element.
I am all for Australians using their SMSF to purchase property, either through cash or an LRBA.
The key to this process or decision is 'education' of the client.
There are many parties in the process they include:
- SMSF Administrator (for instance Redwood Advisory) who set up the SMSF and set up the bare trust. We donot have referrals from real estate agents and find that many of our clients have done the research up front and come to us with their ideal structure and do understand the risk and benefits of the structure. We spend an hour detailing structure and the risks and benefits prior to establishing both the SMSF and the bare trust.
- Bank: they set up the loan, they donot advise on structure just facilitate the loan process (for our clients we usually refer to a trusted broker/ bank manager). Most banks require a financial advice certificate
- There may or may not be a property agent involved
- Conveyancer: donot issue advice, but support the loan process
- Lawyers review the agreements
Alot of parties like to wash their hands of the 'risks', however, my firm ensures the process is understood by the client up front including the up front costs involved.
In summary, even if a real estate agent reccomends an SMSF its up to the parties above to educate the client.
There is so much press about SMSF Property and the spruikers, however, i'd just like to weed out the spruikers that give our industry a bad name and focus on the education element.
My view is that only solicitors can legally set up trusts. SMSFs are trusts and a trust is a complex legal relationship between trustees and members. A recent WA case confirms this view.
You should also never use a conveyancer for a property purchase, especially for a custodian purchasing a property as there are complex stamp duty issues and getting it wrong could result in stamp duty being paid twice. Lawyer can also advise on the SIS Act - as this is legislation.
Someone who is not an admitted lawyer cannot advise on the above. They would not be covered by professional indemnity insurance if they did.
But someone who is a authorised rep of a financial services licence can give financial advice in relation to the purchase of property in a SMSF and other aspects of running the SMSF and strategies surrounding contributions, tax etc. A lawyer couldn't do this unless they hold an AFSL.
So when setting up a SMSF you need a lawyer to do the set up and give legal advice, especially in relation to the structure of the trust deed, the structure of the trustee and succession issues, and also advice on contractual issues and SIS Act issues.
You will also need financial advice from a financial planner (an AFSL or authorised rep).
And you will need a mortgage broker for the finding of the appropriate loan and the structuring of the loan - options are limited here though.
You should also never use a conveyancer for a property purchase, especially for a custodian purchasing a property as there are complex stamp duty issues and getting it wrong could result in stamp duty being paid twice. Lawyer can also advise on the SIS Act - as this is legislation.
Someone who is not an admitted lawyer cannot advise on the above. They would not be covered by professional indemnity insurance if they did.
But someone who is a authorised rep of a financial services licence can give financial advice in relation to the purchase of property in a SMSF and other aspects of running the SMSF and strategies surrounding contributions, tax etc. A lawyer couldn't do this unless they hold an AFSL.
So when setting up a SMSF you need a lawyer to do the set up and give legal advice, especially in relation to the structure of the trust deed, the structure of the trustee and succession issues, and also advice on contractual issues and SIS Act issues.
You will also need financial advice from a financial planner (an AFSL or authorised rep).
And you will need a mortgage broker for the finding of the appropriate loan and the structuring of the loan - options are limited here though.
Correct. Required by some and not by others.
I'm actually with ASIC on this. I'm unimpressed by the volume of "seminars" being marketed with the sole intention of selling geared property to mum&dad using a SMSF. Mum and Dad suddenly are educated by an unlicensed party / parties who teach them that when a SMSF is setup it can fund 30% or more and they can borrow the rest. Its not much better than an early release funding scheme.
Many are marketed by the unregulated elements in the industry either alone or in cahouts with each other. eg real estate agents, some SMSF administrators, mortgage brokers & even accountants etc. Problem in NSW seems to be that anyone can "facilitate" a property sale and doesnt need to be a licensed agent. ie a developers agent. Love those "I'm a successful Property Magnate" websites which suggest you can repeat what I'm awesome at. They are just reeling in suckers. Many have even been given a polish by ACA when they are Gold Coast based but dealing in NSW. Key element is they all claim nobody advised the client to setup the SMSF. Or the accountants says they approached asking if the SMSF can be formed. But one of them actually does establish it. One property seminar group were even "giving away" a SMSF to every attendee. They claim they were instructed by the client. I'm with ASIC...That isnt enough.
I have had several groups of clients see us in past few months having established a SMSF that they didnt understand. None progressed to actually buying property thank god. One with a $70K SMSF. Another $150K and wanted to buy BRP...Requiring a far lower LVR than 80%. Another was guided by an (unlicensed) accountant who also "overlooked" the key fact that the subject property was owned by the members son.
ASIC's media last Wednesday emphasised the kickback element. I'm confident many in the SMSF industry dont do this but obviously some/many are. Also if a agent or a developer is aggressively promoting a site for sale it has to be questioned who is being paid indirectly. I dont see it greatly different to the Westpoint fiasco.
Solution ?? Perhaps a modification to FOFA is required. All parties to a SMSF LRBF should be required to be disclosed in a SOA and be indemnified by the insured party !! I'm regularly approached by SMSF trustees seeking AFSL sign-off well down the track. We won't do it in many cases. One well known SMSF adminstrator is the worst. They dump that obligation onto the trustees yet they give a SOA that is literal BS. They explain the trustee needs "independent" sign-off for the loan that they facilitated. That stinks.
Many are marketed by the unregulated elements in the industry either alone or in cahouts with each other. eg real estate agents, some SMSF administrators, mortgage brokers & even accountants etc. Problem in NSW seems to be that anyone can "facilitate" a property sale and doesnt need to be a licensed agent. ie a developers agent. Love those "I'm a successful Property Magnate" websites which suggest you can repeat what I'm awesome at. They are just reeling in suckers. Many have even been given a polish by ACA when they are Gold Coast based but dealing in NSW. Key element is they all claim nobody advised the client to setup the SMSF. Or the accountants says they approached asking if the SMSF can be formed. But one of them actually does establish it. One property seminar group were even "giving away" a SMSF to every attendee. They claim they were instructed by the client. I'm with ASIC...That isnt enough.
I have had several groups of clients see us in past few months having established a SMSF that they didnt understand. None progressed to actually buying property thank god. One with a $70K SMSF. Another $150K and wanted to buy BRP...Requiring a far lower LVR than 80%. Another was guided by an (unlicensed) accountant who also "overlooked" the key fact that the subject property was owned by the members son.
ASIC's media last Wednesday emphasised the kickback element. I'm confident many in the SMSF industry dont do this but obviously some/many are. Also if a agent or a developer is aggressively promoting a site for sale it has to be questioned who is being paid indirectly. I dont see it greatly different to the Westpoint fiasco.
Solution ?? Perhaps a modification to FOFA is required. All parties to a SMSF LRBF should be required to be disclosed in a SOA and be indemnified by the insured party !! I'm regularly approached by SMSF trustees seeking AFSL sign-off well down the track. We won't do it in many cases. One well known SMSF adminstrator is the worst. They dump that obligation onto the trustees yet they give a SOA that is literal BS. They explain the trustee needs "independent" sign-off for the loan that they facilitated. That stinks.
I'm finding some trustees are not understanding the implications of a limited recourse borrowing facility on their personal credit. The directors give a personal guarantee and it can be a massive handbrake on personal finance later. It is noted as a potential charge/liability with Veda on the credit reference and can immediately affect applications for cards and even a new home loan. One client came to us after he had his Amex suspended for six months as a result. Apparent a Amex credit policy if a charge is given and they have a charge card with the individual. It was reinstated after 6 months.
I have also seen instances of trustees using own home as security for a LRBF guarantee and then been incapable of changing own homes or to increase their mortgage. The potential charge is a boat anchor.
In each case I have seen nobody cautioned the client. They all blame the other. Lawyer says its financial advice. Finance guy says its a credit issue and brokers problem. Broker says he just facilitated the loan for the SMSF arrangement that the layer instructed. Accountant says he is banned from offering financial and credit advice.
dumb question but why do you have to give a personal guarantee on a limited recourse loan? what is the guarantee for?
Its just the lenders getting as much security as possible - entirely unnecessary of course.
Pretty early in the piece all and sundry were heralding what a great opportunity SMSF lending would be for financial planners, accountants, lawyers, brokers and lenders.
This was the point at which I decided it wasn't a market I would play in.
It's going to be lawyers picnic in a few years.
This was the point at which I decided it wasn't a market I would play in.
It's going to be lawyers picnic in a few years.
Already is....
