SMSFs in focus
to protect wealth
More professional advisers and borrowers are turning to the long-term wealth creation and taxation benefits of SMSFs as the economy puts pressure on asset values
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NON-BANKS INVOLVED in self-managed super fund lending are reporting an uptick in interest as people seek to preserve wealth, service loans, or take better control of their investments in the face of tougher economic conditions.
Retirement plans are under more pressure as inflation erodes the spending power of fixed incomes, while retail and industry super funds suffer diminishing returns in the face of stock and property market downturns.
“With the changing level of returns industry funds provide, we see many clients looking to manage their own superannuation funds with the assistance of a financial planner,” says Peter Vala, general manager partnerships and distribution at Thinktank.
The outlook for continued central bank interest rate hikes suggests the squeeze on generalist investments may prove a long-term phenomenon.
“We expect the recent rate changes will have people re-evaluating their finances and looking at their super balance – particularly if they dipped into it for cash flow purposes,” says John Mohnacheff, group sales manager at non-bank Liberty.
SMSFs allow people to manage their own super funds by choosing the investments and insurance. SMSFs can buy assets, such as a residential or commercial property, through a limited recourse borrowing arrangement.
“With more customers becoming aware of the advantages of LRBAs, self-managed super funds continue to grow in popularity,” says Mohnacheff.
SMSFs are specifically designed to deliver retirement benefits to members of a fund, but they can also protect any assets in the fund from unexpected events arising and impacting those members elsewhere.
“SMSFs effectively quarantine all assets in the fund, including real property, and when lending to an SMSF, the legislative protections of the LRBA structure effectively silo the property away from any other business activities or claims,” says Vala.
Savvy investors are moving to pay down their debts and wall off investments as the outlook for the economy clouds over.
“It seems the current economic cycle is encouraging the further uptake of SMSFs through the use of concessional contributions to assist servicing of loans and holding an asset in a tax-effective entity that's preparing for the retirement benefits of the beneficiaries of the fund,” says Vala.
Selling an existing property to an SMSF can release capital for other purposes, for example.
Thinktank can cater to a wide variety of borrowing structures, including Unit Trust loans, tenants in common, in-specie transactions, along with short-term GST funding.
With many larger banks no longer in the SMSF lending game, non-banks like Liberty and Thinktank hold all the cards when it comes to understanding this complex area.
In a rapidly evolving economy, brokers looking to diversify and help clients who want to bolster earnings and protect assets for the future are likely to field new and difficult questions when it comes to options currently available for SMSFs.
The most successful investors know they need to adjust positions when markets turn, but brokers who take practical steps early on to be in a position to help clients will win loyalty over the long term.
“This is supported by direct access to our underwriting team for any queries along the way,” he says.
Mohnacheff adds that brokers will often find customers within their existing client databases who are interested in SMSFs. “Letting clients know you can assist with SMSF loans will help position you as a first point of contact – and it could be as simple as including this option in client communications.”
Another good place to start is to set up referral arrangements with financial planning groups, lawyers or accountants who have an interest in wealth creation strategies.
Thinktank also holds regular SMSF accreditation and education sessions at the introductory level and will shortly be launching a more advanced series of complex SMSF lending sessions.
“These events are all hands-on where we workshop different transactions and scenarios to demonstrate from a lender and broker perspective what type of lending can and cannot be done in the SMSF lending arena,” says Vala.
Products
Liberty’s main offering in the SMSF area is its SuperCredit product, which enables established SMSFs to invest in either residential or commercial property using their super.
Liberty SuperCredit has no minimum contribution requirements and offers LVRs of up to 80% of the property value.
“We’re delighted to support even more Australians to get financial and grow their retirement assets with free-thinking solutions,” says Mohnacheff.
Thinktank is a market leader in terms of product range, loan structure options and price. It offers LVRs of up to 80% for both residential and commercial properties purchased in an SMSF and can provide loans of up to $4m for commercial property purchases.
“Most of our loans are written over 30-year terms, with each loan assessed on its own merits,” says Vala.
As a leading Australian non-bank lender, Liberty offers innovative solutions at competitive prices to support customers with greater choice. Over the past 24 years, this free-thinking approach to loan solutions has seen more than 600,000 customers get finance across a wide range of home, car, personal and business loans, as well as SMSF lending and insurance products. Liberty remains the only non-bank lender with an investment-grade credit rating offering custom and prime solutions to help more people get finance.
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“For many borrowers, the ability to have all their lending needs met by one trusted adviser can be a powerful drawcard,” he says.
“More people will be looking for a single source to meet all their finance needs, which creates an opportunity for brokers to broaden their services.”
Saoud agrees.
“Clever brokers as business owners know that the best returns come from repeat customers," he says. "Equally as fruitful is the opportunity to offer these customers multiple services and products through broadening your range of products and solutions.”
Thinktank is an independent non-bank financial institution specialising in the provision of commercial-property mortgage finance of up to $4m and residential-property mortgage finance of up to $2m in the Australian
self-employed, PAYG and SME sectors. Since 2006, Thinktank has provided over $6.5bn of commercial, residential and SMSF lending solutions, which have enabled thousands of borrowers to achieve their goals of acquisition, refinancing and equity release. Thinktank offers a range of lending solutions, which include Full Doc, Mid Doc (alternative income verification), Quick Doc and SMSF loans.
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“Letting clients know you can assist with SMSF loans will help position you as a first point of contact – and it could be as simple as including this option in client communications”
JOHN MOHNACHEFF, LIBERTY
In Partnership with
But alongside headlines tinged with gloom about the property market, Australian household debt to GDP is also less than it was at the beginning of last year. This suggests that the smart money is doing something.
One factor may be that more professional advisers and borrowers are coming to understand and value the long-term wealth creation and taxation benefits associated with SMSFs and are using them more frequently.
“The current economic cycle could also have existing SMSF members seeking greater control over where they invest their funds,” says Mohnacheff.
John Mohnacheff
Liberty
Industry Experts
John Mohnacheff is Liberty's ebullient and charismatic group sales manager. With over 30 years of insurance, banking and finance experience, he is committed to improving the sales habits and disciplines of the entire group sales team. Before joining Liberty, Mohnacheff held executive roles at Westpac and the
Bank of Melbourne. He has a Bachelor of Business and a Marketing Master's from the University of New England and a Postgraduate Diploma in Organisational Behaviour from the University of NSW.
Liberty
John Mohnacheff
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Industry experts
John Mohnacheff is Liberty's ebullient and charismatic group sales manager. With over 30 years of insurance, banking and finance experience, he is committed to improving the sales habits and disciplines of the entire group sales team. Before joining Liberty, Mohnacheff held executive roles at Westpac and the
Bank of Melbourne. He has a Bachelor of Business and a Marketing Master's from the University of New England and a Postgraduate Diploma in Organisational Behaviour from the University of NSW.
Liberty
John Mohnacheff
Peter Vala has extensive experience in residential, commercial and development finance. He specialises in strategic implementation, leads the Thinktank relationship manager team, and works closely with brokers and aggregators.
Thinktank
Peter Vala
Brokers can seek formally recognised qualifications from relevant professional associations to address some of these compliance issues and take advantage of additional educational development and support in the field provided by non-banks.
Liberty operates LRBA ‘Grow More’ sessions that provide comprehensive training designed to bring brokers up to speed and equip them with the necessary tools to hit the ground running.
The Liberty BDM team has unmatched LRBA lending experience and is always happy to meet with brokers and walk them through the entire loan process to ensure a good outcome, says Mohnacheff.
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Source: ATO self-managed superannuation funds: statistical overview
2021
$822bn
Value of SMSF assets as at 30 June (2019-21)
“It seems the current economic cycle is encouraging the further uptake of SMSFs through the use of concessional contributions to assist servicing of loans and holding an asset in a tax-effective entity”
Peter Vala, Thinktank
$733.1bn
$747.6bn
2020
2019
26.0%
Expert guidance advised
But SMSF loans aren’t for novices; qualified investment, accounting, auditing, tax and legal advice is needed. Applications are complex, and many large financial institutions, including some of the major banks, decided several years ago to withdraw from the market.
Failure to structure the arrangements correctly can also result in large fines.
“It’s important that a broker does not inadvertently provide direct financial advice to a client but works in concert with their financial planner and other professional advisers, unless the broker is properly qualified in their own right to do so,” says Vala.
One tip Vala has for brokers is that they should ask clients with existing SMSF LRBAs to review their current loan arrangements and see whether the repayments have significantly increased, as a number of historical SMSF loans were written at higher rates and often over relatively short loan terms.
“By refinancing an existing SMSF, the client may achieve a lower rate but may also see the loan term extended out to deliver a much lower monthly repayment and thereby improve the underlying cash flows and liquidity of the fund,” he says.
Proportion of Australia's superannuation sector
Click to see more
As clients change and explore alternative ways of continuing to do business in a tougher economic environment, brokers will naturally want to follow their lead and provide the best service they can rather than see a deal walk down the road to a rival with a broader range of lending options available.
“It really comes down to having the necessary flexibility to meet a client’s varying needs. The more products a broker can deliver, the greater chance they will have of retaining existing clients and opening new opportunities,” says Vala.
John Mohnacheff is Liberty's ebullient and charismatic group sales manager. With over 30 years of insurance, banking and finance experience, he is committed to improving the sales habits and disciplines of the entire group sales team. Before joining Liberty, Mohnacheff held executive roles at Westpac and the Bank of Melbourne. He has a Bachelor of Business and a Marketing Master's from the University of New England and a Postgraduate Diploma in Organisational Behaviour from the University of NSW.
Liberty
John Mohnacheff
Peter Vala
Thinktank
Peter Vala has extensive experience in residential, commercial and development finance. He specialises in strategic implementation, leads the Thinktank relationship manager team, and works closely with brokers and aggregators.
Thinktank
Peter Vala
“It seems the current economic cycle is encouraging the further uptake of SMSFs through the use of concessional contributions to assist servicing of loans and holding an asset in a tax-effective entity”
Peter Vala,
Thinktank
Peter Vala
Thinktank
Peter Vala has extensive experience in residential, commercial and development finance. He specialises in strategic implementation, leads the Thinktank relationship manager team, and works closely with brokers and aggregators.
Thinktank
Peter Vala
“We’re seeing many brokers achieving great results when diversification is included in their overall growth strategy”
JOHN MOHNACHEFF,
LIBERTY
Barry Saoud joined Pepper Money in July 2021 as general manager, mortgages and commercial lending and is responsible for its strategic direction and operating performance across product, credit and settlements sales functions for Australia and New Zealand mortgages, commercial loans, personal loans and direct sales. With over two decades’ experience in financial services, Saoud has worked in numerous areas across legal, company secretary, sales and product management roles with the likes of Aussie Home Loans, GE Capital, HSBC and Norton Rose Fulbright. Saoud is a passionate leader with proven ability to grow businesses and exceed targets through innovative strategy and effective execution.
Pepper Money
Barry Saoud
Peter Vala has extensive experience in residential, commercial and development finance. He specialises in strategic implementation, leads the Thinktank relationship manager team, and works closely with brokers and aggregators.
Thinktank
Peter Vala
John Mohnacheff is Liberty's ebullient and charismatic group sales manager. With over 30 years of insurance, banking and finance experience, he is committed to improving the sales habits and disciplines of the entire group sales team. Before joining Liberty, Mohnacheff held executive roles at Westpac and Bank of Melbourne. He has a Bachelor of Business and a Marketing Master’s from the University of New England, and a Postgraduate Diploma in Organisational Behaviour from the University of NSW.
Liberty
John Mohnacheff
25.6%
24.9%
Source: ATO self-managed superannuation funds: statistical overview
2016–17
565,385
565,819
568,908
2.8%
GROWTH IN NUMBER OF SMSFs OVER PAST FIVE YEARS
575,000
600,000
550,000
525,000
2017–18
2018–19
2019–20
574,775
2020–21
597,900
0.5%
0.1%
1.0%
4.0%
Growth
“Letting clients know you can assist with SMSF loans will help position you as a first point of contact – and it could be as simple as including this option in client communications”
John Mohnacheff, LIBERTY
