Getting to grips with trillion-dollar asset class not a luxury for trusted advisers
The appetite for investing in property through self-managed super funds (SMSFs) is only getting stronger in Australia, making it more important than ever for mortgage brokers to know what they are talking about.
As has been discussed recently in MPA, there remain some major misconceptions around the what, why and when of SMSF investment, among brokers and customers alike.
Important matters like related-parties rules, super fund limited recourse and the issue of “spruiking” often get overlooked.
It leaves brokers vested with the appropriate knowledge of this trillion-dollar asset class at a natural advantage, particularly at a time when customers demand as diverse a skill set as possible from their trusted advisers.
“At Pepper Money, we see SMSF loans as an opportunity for brokers to create a strong value proposition that resonates with property-minded Australians who want more control over their investments,” said Siobhan Williams (pictured), head of mortgage, retail broker, at non-bank lender Pepper Money.
However, it pays to be aware of the inherent complexities of SMSF property investing.
Unique advantages
“For many brokers, the challenge lies in understanding compliance requirements and building a framework of support around the client,” said Williams.
“Given the regulations governing SMSFs, brokers often need to work closely with the client’s accountant and financial planner to ensure that each SMSF loan is compliant and suitable for the client’s situation.”
In Williams’ view, it is critical for brokers to understand “the unique advantages these products offer”, particularly how they can provide a way for customers to diversify their retirement portfolio with a relatively small cash outlay.
“This can be particularly appealing to clients looking to establish a new income stream or expand their business with commercial property,” said Williams. “With the right support and tools, brokers can provide information on this lending solution to clients,
showing them how SMSF loans can align with their long-term financial objectives.”
Customers often lack sophisticated knowledge of how SMSF investing works, making the importance of brokers throughout the process even more apparent.
Pepper Money recently conducted a poll with news.com.au revealing that 80% of Australians know that they can use superannuation to purchase property, but they are unaware of how to go about doing it.
This is despite the remarkable growth of SMSFs in recent years.
A trillion and counting
Between June 2022 and June 2024, the total number of SMSFs increased by 7% to nearly 626,000, while the total number of members rose by 6% to more than 1.15 million.
More recently, the total number of members approached 1.2 million, while total assets under management hit a historic milestone of exceeding $1tn. This represents roughly a quarter of all superannuation assets in the country – lagging behind industry funds but sharply ahead of retail funds and public sector funds.
With a large portion of SMSFs investing in property assets, including both commercial
and residential real estate, “this sustained growth reflects Australians' passion for property and their desire to take control of their financial futures”, said Williams.
These statistics present “a great opportunity for brokers to understand these lending solutions”, said Williams. “With the right support and tools, brokers can provide information on this lending solution to clients, showing them how SMSF loans can align with their long-term financial objectives.
“At Pepper Money, we see SMSF loans as an opportunity for brokers to create a strong value proposition that resonates with property-minded Australians who want more control over their investments.”
Time to refinance?
“The current economic environment presents significant opportunities for brokers, particularly in refinancing and restructuring older SMSF loans,” Williams said.
She noted that, while the rates are coming down in the wake of the Reserve Bank of Australia (RBA)’s long-awaited 25-point interest rate cut, many existing SMSF loans are still sitting at double-digit interest rates.
“This creates a powerful incentive for clients to refinance, potentially reducing their interest burden and freeing up funds for reinvestment or other purposes,” said Williams.
She also highlighted the shifting demographics of SMSF members, highlighting that recent Australian Taxation Office (ATO) data showed a growing trend among younger Australians in the Gen X and Millennial cohorts.
“Brokers should consider this shift as they strategise outreach efforts, especially when discussing refinancing options that align with clients’ goals of reducing potential costs,” Williams said.
It all leads to continued growth in SMSF investing, meaning brokers can future-proof their offerings with the requisite knowledge.
“By tapping into the SMSF market with a solid understanding of the complexities and benefits of these lending solutions, brokers can diversify their business, strengthen relationships with their clients, and establish themselves as trusted advisors in an increasingly sophisticated lending landscape,” Williams said.
