Industry divided on LRBA regulations

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Treasury’s amendment to make Limited Recourse Borrowing Arrangements (LRBAs) a financial product has been met with negative feedback from CPA Australia.

The proposed changes received 18 submissions last year, including ASFA, the ABA, SPAA and CPA.

In a submission to Treasury, CPA Australia said the changes would not ensure adequate customer protection, as intended.

“If these arrangements are regulated as a financial product, professional accountants would no longer be able to provide this guidance and in effect, consumers’ access to trusted, qualified advice would be severely diminished,” said CPA head of business and investment policy Paul Drum in the submission.

SPAA has recently spoken up about SMSFs using an LRBA, and said it supported the changes to make the borrowing arrangements a designated financial product.

“If this change can be implemented, it will mean that only professionals licensed to provide financial advice can advise on limited recourse borrowing arrangements, and they will be required to consider a client’s complete financial circumstances, not just those that relate to the borrowing arrangement in isolation,” said SPAA education and professional standards director Graeme Colley to Professional Planner.

ASFA also had positive feedback on the proposal, but said it was over complicated and excessively focused on instalment warrants.

Their submission said the proposed licensing requirements for a derivative or securities license failed to recognise that LRBAs increasingly involved a number of assets, in particular property.

Financial planner Paul Levy hoped the changes would provide more regulation for the real estate industry in general, which he said is not regulated as strenuously as the financial planning industry.

“When someone wants to buy a property, the real estate agent does not explore: who should own the asset, what structure should we use, should we look at your increased insurance needs once you increase your loan, should payments be monthly or fortnightly, should we look at your Estate Planning needs etc.,” he said.

“I would hope that if LRBAs become a financial product then property in general should become more regulated.”

Wealth Professional asked Treasury if there had been any developments on the changes or when we could expect to see these, but has not yet received a response. CPA Australia has also been asked if the limited AFSL has changed their stance on the issue.

  • Wondering but not hopeful on 15/01/2013 12:56:39 PM

    Let me start by saying that I am an accountant, tax agent, authorised representative and a credit representative. If LRBA become financial products how are planners who do not have a credit representative or loan writer within their group going to advise on these. Rather than individual groups trying for a 'land grab' of we are the only group who can advise on these products. Perhaps if everyone stepped back and thought properly about the services provided to our customers we would not have this problem caused by turning what is a structure (the superannuation vehicle which is no different from a company or a trust or a partnership or even a sole trader for that matter. They are all structures to operate within) into a finanical product, we would not be trying to turn what is a 'lending product' into a finacial product, and the implications this then has for lending in general going forward. It would be nice to think that these issues were thought about clearly and rationally to come up with solutions that enhance the advice profession generally so that customers can get advice from their preferred supplier rather than having to get advice from many differnt people only because the legislation forces it. This is not providing choice for our customers but is conscripting them to service providers that they do not wish to deal with, and cutting out of the advise profession qualified people unnecessarily. What happens to the morgate broker if this all goes ahead. What about the customer, how do they win out of this. Lets make property a financial product as well and see what happens to real estate agents. Where does it all stop. I have seen a lot of rubbish proposed as good law in my time but the financial planning industry is now starting to lead the way with rubbish proposals. All of the professional associations have a lot to answer for and need to start to take responsibility for the rubbish that is coming out of the govenrment as law.

  • Pat on 15/01/2013 3:08:05 PM

    "I am an accountant, tax agent, authorised representative and a credit representative."

    Wow, I am impressed that you can find the time to meet your PD requirements for all of those roles.

    I am an adviser and SMSF specialist. We do not have a loan writer in our group, but have access to a range of brokers and financiers who can assist. I am not sure what your concern is there.

    I have no issue with an LRBA becoming a financial product as it ensures that the client can seek advice from someone who can consider their overall financial position rather than just their tax (accountant) or lending (credit) position.

  • MG on 16/01/2013 9:14:03 AM

    I agree with Pat - "I am an accountant, tax agent, authorised representative and a credit representative."
    This is ridiculous - it's like saying "I'm a brain surgeon, heart surgeon, vascular surgeon..." - jack of all trades and a master of none.
    How can one keep pace with PD requirements?

  • Ben on 16/01/2013 12:25:21 PM

    Typical accountant's response. Why is it that accountants feel they are the be-all and end-all for eveyonne? Is it because they are worried financial planners are going to take their clients? Please, you are not all super human nor are you 'better' than a financial planner. The legislation is about ensuring the client's best interest is looked after from an advice perspective. There are so many accountants out there who provide financial advice yet are not authorised and when the preverbial hits that fan they sit back and say oh no it wasn't me, I can't provide advice. This is the sort of situation the legislation is trying to diminish. If you want to provide advice that's fine, just do it the right way. Also a level playing field would be nice, as accountant's have had the good life for far too long!

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