The substantial amount of documentation required to set up a limited recourse borrowing arrangement (LRBA) for a self-managed superannuation fund (SMSF) is still a major issue confronting trustees and advisers, according to a senior executive in the super industry.
“The volume of documentation from the various disciplines, being legal, accounting and financial planning, in itself is so large that collating it together and presenting it in an ordered form to a financial institution is causing us a problem,” Super Fusion chief executive Michael Rafferty said.
“Unless there is someone to coordinate this for the disciplines the banks are turning around and saying we need to get more documentation.”
Apart from the volume of documentation required the specific items that need to be lodged with the lending institution can also inhibit the process.
Speaking at yesterday’s 2012 Self-Managed Super Fund Professionals’ Association of Australia (SPAA) National Conference, Rafferty cited a full bank application as an example of the specific elements that are requested from lenders.
“There are no financial advisers, unless they are licensed accordingly, that are in a position to complete a full bank application and all the documentation that goes with it. That is an onerous exercise in itself,” he said.
In addition, the trust deed and trustee information has to be collected by someone and certified in every case, meaning approval has to be granted by the lawyers, accountants and financial planners involved in the transaction, he added.
“I haven’t seen one deal, and there have possibly been 100 I’ve done over the last 18 months, go through cleanly,” Rafferty said.
The insistence of some lending institutions of having the asset in question re-valued by their own valuation methods is another problem being encountered by SMSFs wanting to adopt these type of gearing strategies.
According to Rafferty, issues are arising where the asset is given a value lower than the original value, effectively changing the loan-to-valuation ratio of the LRBA.
To view video coverage of the 2012 SPAA SMSF National Conference, please visit InvestorDaily‘s video page.
