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Lawyer warns advisers on SMSF lending

Advisers and accountants who are completing SMSF lenders' advice certificates may be inadvertently breaching the law, according to a financial services lawyer.

The Fold Legal senior lawyer Lesley Thorne said advisers who are providing certificates for limited recourse borrowing arrangement for SMSF clients may be in breach of the National Consumer Credit Protection Act 2009, for which they may not be insured. 

“Unless the adviser or accountant holds an Australian Credit Licence or is a Credit Representative of a licensee, it is an offence to provide ‘credit assistance’ or ‘act as an intermediary’ in relation to consumer credit,” Ms Thorne said.

“This means that if the client’s loan is consumer credit and the adviser or accountant isn’t licensed or authorised, they can only provide the client and their lender with factual information,” she said. 

Ms Thorne said where the trustees of an SMSF are individuals, a limited recourse borrowing arrangement will be consumer credit if it is to purchase, renovate or improve residential property for investment purposes.

“Because the objective of an SMSF is to provide retirement funds for members, a property purchase or renovation by the SMSF will always be for investment purposes,” Ms Thorne said. 

“This means that a loan provided to SMSF trustees who are individuals intending to purchase/renovate property will be consumer credit,” she said.

Ms Thorne also said advisers and accountants need to be wary in this area, since providing advice on the loan or a certificate to the lender could overstep their professional boundaries.

“[This would leave] them vulnerable to claims by a client or a lender that aren’t covered by their professional indemnity insurance,” Ms Thorne said.