SMSFs have exploded in popularity in recent years and brokers are perfectly placed to take advantage
Self-managed super funds (SMSFs) have seen a surge in popularity in recent years as more Australians look to take more control of their own financial future and seek a viable alternative to the fee-charging retail and industry funds.
In addition, legislative changes that allow SMSFs to borrow money in order to purchase property have made these funds even more appealing. Given that capital city property values rose by more than 10 per cent in 2013, according to RP Data, it’s easy to see why this sector is taking off.
With its rise in popularity, many brokers are already cashing in on the SMSF market. Writing SMSF loans is a great way to develop very strong client relationships since dealing with the intricacies involved really demonstrates the broker’s value to their client.
However, these intricacies also mean a broker must be well prepared before entering the space if they are to get it right. There are very strict rules governing the SMSF area, including exactly what a broker can and can’t do.
Need to know
Phil Naylor, chief executive of the MFAA, confirms that while SMSFs represent an area of real opportunity for brokers, it’s one that must be approached with some caution.
“It’s an area that regulators are looking at very closely to make sure it doesn’t get out of hand, because it has the potential to get out of control if it’s in the wrong hands,” he says.
In order to best prepare its member brokers, the MFAA has introduced a course specifically designed to teach brokers what they need to know to break into the space. One of the most important lessons, according to Mr Naylor, is to know exactly what brokers can and can’t do.
“Brokers are there to provide credit advice and that’s advice about the finance,” he says. “They are not there to provide – and they are not allowed to provide – recommendations or advice about setting up the fund or the rationale for the fund.”
Greg Mitchell, general manager for sales at Homeloans, says the company’s BDMs are also working hard to help brokers take advantage of this potentially very lucrative space.
“Our BDMs work closely with Homeloans’ accredited brokers to train them in the intricacies of SMSF lending and enable them to be able to fully understand the credit assessment process,” Mr Mitchell says.
“This involves providing information from a financial planner on what the process involves and ensuring clients are purchasing in the right entity. While the lending side of the process is quite basic, it’s obviously important to ensure [all aspects] of purchasing residential property within an SMSF are properly complied with,” he says.
Given the complex nature of the SMSF sector, Mr Mitchell says it is best suited to brokers with strong affiliations with financial planners, accountants and lawyers.
“Homeloans has a specific application form, and then there are specific set-up processes, which are handled by a financial planner or solicitor. Lending is just one piece of the puzzle, hence a financial planner and solicitor being required for the other elements,” he says.
Peter Gwynne of Financing Property says he has seen huge rewards from integrating SMSF loans into his offering.
“I knew it was going to be a massive sector and that a lot of brokers were scared of it, so I went and I did a lot of research on SMSF lending and jumped on in because I saw there was a really big opportunity there,” he says.
Mr Gwynne adds that the initial hard work has paid off, with SMSF loans helping him to establish great client relationships and build a very solid loan book.
“I don’t really think many people will ever refinance an SMSF loan, so if you can do the work and get the loans through then it’s really going to build your trail book,” he says.
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