A self-managed super fund (SMSF) loan allows for borrowers to take control of their super earnings and invest directly into assets such as property.
“An SMSF may provide greater choice over how your retirement savings are invested instead of relying on a super fund to do it for you. Anyone considering an SMSF should work closely with a financial advisor or accountant, not only to ensure that an SMSF is an appropriate choice, but also to help you determine an investment plan that’s most likely to meet your retirement needs” explained Bluestone.
There’s a golden opportunity for brokers to get involved in a largely underappreciated space.
Don’t listen to the misconceptions
SMSF has a tendency to sound more complex than it is. According to Bluestone’s head of specialised distribution Richard Chesworth, every loan is daunting before jumping in.
“It’s not complex if you have the tools and means to understand it. But you only get that by doing it. Every broker’s first home loan, when you think back, that was complex. And their first investment loan, that was complex. So, for brokers, it’s about setting a strategy on how am I going to enter this space? And that is by working closely with their accountant or their referral partners who may be accountants and really explore the refinance segment,” said Chesworth.
“First of all, identify an opportunity. And a key way of doing that is to talk to your partners around when did someone last review your SMSF loans? Well, they haven’t is usually the answer. ‘Have you got two or three I could take away and workshop for you?’ So, then you’re going to get the rates, the terms and the payments and also the value of the property.”
“You take that information away, then pair up with the lender and workshop the loan. You’re really workshopping it, getting an understanding, that’s key for demonstrating the savings. The other point is to get a real clear understanding of the entities involved, being the SMSF trust and the bare trust and that interrelationship.”
He added: “It’s a similar trust loan, but there’s two trusts, but do I understand why? And that’s where our education series come into play, because we very much break that down into simple terms of why these structures are in place. This is why education above and beyond just offering a product is key.”
Diversifying offerings
Further to broadening a broker’s expertise, branching out into the SMSF space can help to diversify offerings for customers. By providing a comprehensive service, clients are more likely to stick around.
“It’s about growing your business. It’s about growing your own knowledge, growing your value to your customer base and your referral partners,” said Chesworth.
“It’s growing yourself as a broker in where you can service, but more importantly, it’s protecting your business because the brokers who say, I don’t do SMSF loans, well, that customer is going to another broker who’s going to do their job, who will say ‘Tell me about your loan, tell me about your other opportunities.’”
The importance of education
Unfortunately for both brokers and borrowers, education around SMSF lending is limited. Helping to fill this niche is Bluestone, who is helping brokers to build confidence and get writing their first SMSF loan.
Chesworth says the work Bluestone does around education is paramount: “There’s limited people out in the industry actually educating. It’s helping brokers to understand how the structures work. And equally, that flows through to accountants, financial planners and solicitors.”
“It’s working jointly to assist the customers through the process. We drive this education out through the lending space.”
Thankfully, the education provided seems to be landing as uptick has been consistent: “If you look at the growth in the SMSF market over the years, it’s like anything going from zero. The growth appears big, but it’s consistent. It’s like a new car brand hitting the country. Their sales are through the roof, but in the whole market, it’s relevant.”
“Activity is constantly there. What we see is the market’s matured now. It’s been in place for 17 years and it still seems like a new conversation to so many people. As new business is coming through, other SMSF loans are at the end of their life cycle and people are either paying their debt out or selling the property.”
While 17 years isn’t a short amount of time, the size of the market means there aren’t enough people involved to make too much of an impact.
However, Chesworth notes that brokers are an essential component of SMSF lending, showing just how lucrative the opportunity can be for those who have these loans on offer.
“The total assets securing SMSF loans or limited recourse borrowing arrangements is around $65 billion, and that secures about $27 billion worth of debt. When you put that in context with our housing market, which is the size of trillions, it’s quite insignificant.”
“So, it’s a small part of the market, but mortgage brokers are key in this segment because the majors aren’t in there in the market and over 70 per cent of volume is going through mortgage brokers.”
Product providers have a role to play in promoting and educating on the benefits of SMSF lending. Barriers to entry mean less people are able to access these investments, which stands to disadvantage the entire industry.
Testimonial from a broker
Bluestone has assisted plenty of brokers enter the SMSF arena. One such client was Pratyush Bhandoria, director at Kian Mortgage Solutions.
Bhandoria went from not knowing how to spell SMSF to now having these loans make up 20 per cent of his business.
“I was very keen to the extent that I was desperate to get in that space. I wasn’t sure of how to upskill myself, and that’s where I was a little bit concerned and apprehensive about getting into a space where I had no idea what kind of regulations are there, what kind of compliance is there,” he explained.
“I spoke with Bluestone and I expressed my inability to actually write the law on the SMSF side. They were kind and sat down with me, explained me the entire piece of the terminologies, what I needed to do within the documents, what is it that I need to look out for, because ultimately, due diligence is the most critical element when it comes to lending.”
Bhandoria continued: “They were handholding me in that crucial stage … Today, I can do a SMSF deal faster than a regular deal. And this came from not knowing a thing about it to now being able to do it more efficiently than any other. Last year, SMSF was just 1.5 per cent of my business. This year, I’m doing 20 per cent.”
It’s time to get started!
Getting started is the hardest part. That’s where building knowledge is key and can help to develop confidence. Writing a SMSF loan is no trickier than a regular mortgage, if you have to tools and understanding to do so.
“The easiest and smartest way is to work with your referral partners and identify opportunities. You don’t have to answer all the questions on the spot, but gather the information, come to a trusted service provider like Bluestone, and we can workshop that with you and give you the points to go back with and manage that customer through,” concluded Chesworth.
To learn more about SMSF loans, visit Bluestone’s Broker Hub. Here there are multiple guides to help borrowers understand investment and brokers hone their skillset.
