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The financial planning industry

Watch this space – The next financial planning disaster

John Hewison
Founder and Director
24 Sep 2014

We are all still reeling from the Commonwealth Bank of Australia (CBA) and Macquarie Bank financial advice disasters. The financial planning industry, together with the Federal Government and key financial institutions are debating the need for further FoFA reform. 

However, the next potential disaster is just bubbling away under the surface, in the form of Limited Recourse Borrowing Arrangements (LRBA) within superannuation funds.

As financial advisers, we are hearing and seeing more and more evidence of completely inappropriate advice in respect to borrowing money in superannuation. Younger investors with minimal account balances are being encouraged to borrow large amounts of money in order to buy properties in their super funds. Middle aged individuals, who should be risk averse and preparing for retirement income streams, are also being led down the path of gearing property through their super funds. This is simply inappropriate behaviour and represents the new domain that property spruikers and mortgage brokers may use to tap into a lucrative revenue stream.

LRBAs are a legitimate form of investment for a select group of high net worth clients. These individuals can legitimately incorporate the structure into their strategy without compromising the sole purpose test, maintain appropriate levels of liquidity and flexibility and incorporate a legitimate debt reduction program. This is clearly not the case in the majority of cases.

As history has repeatedly shown, legitimate investments are compromised by a select number of  shonky operators who abuse the system and cause havoc in the outcomes. The typical response by regulators is to introduce overkill bans that make life difficult for everyone.

Every time I hear an advertisement for property investment opportunities and specialist lending specifically aimed at gearing superannuation, I shudder. It is just simply inappropriate and flies in the face of the regulatory hurdles which legitimate financial advisers will observe correctly.

This will inevitably end in tears for a lot of Australians. So I ask, where is the regulator?      

Hewison Private Wealth provides wealth strategies tailored to an individual’s needs and circumstances. It would not recommend a LBRA to an individual unless it was in that individual’s best interest. Please contact us for further information on LBRAs. 

Hewison Private Wealth is a Melbourne based independent financial planning firm. Our financial advisers are highly qualified wealth managers and specialise in self managed super funds (SMSF), financial planning, retirement planning advice and investment portfolio management. If you would like to speak to a financial adviser on how you can secure your financial future please contact us 03 8548 4800, email info@hewison.com.au or visit www.hewison.com.auPlease note: The advice provided above is general information only and individuals should seek specialised advice from a qualified financial advisor. The views in this blog are those of the individual and may not represent the general opinion of the firm. Please contact Hewison Private Wealth for more information.