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Forward Thinking Magazine : August 2011
26 Macquarie Adviser Services 1Investment Trends Pty Ltd, SMSF Investor Report, May 2009 Tips and traps for LRBAs It's now more than 12 months since the most recent amendments to the limited recourse borrowing arrangement (LRBA) super rules, so it's timely to review the state of play. In this article we will look at what's driving this particular market segment, some of the issues financial advisers are encountering in giving advice on the topic, and some possible solutions to the problems raised. The anecdotal evidence we've heard from many financial advisers is the LRBA market is growing rapidly. Some advisers report that clients are approaching them to raise the issue about gearing up their super funds, especially self-managed super funds (SMSFs). Of course, different advisers have responded differently to their clients' requests. Some have quite understandably urged caution, while others have also quite understandably, acquiesced to their clients' requests and assisted them to establish compliant LRBA structures. The pros and cons of super borrowing arrangements are beyond the scope of this article, but for further analysis of whether or not to gear up in super, please refer to the article 'Break even returns: gearing or not and super or not', in the April 2009 edition of Forward Thinking, available online at macquarie.com.au/ftmagazine. For those advisers who have access to the MAStech Library website, the article can also be found there, as well as the MAStech Investment Strategy Model, a calculation tool that will help financial advisers analyse specific client scenarios regarding whether gearing in super is in their best interests. The client-driven nature of the growth in the LRBA market is at least partly attributable to the long-held love affair Australians have with direct property. The Investment Trends May 2009 SMSF Investor Report suggested that SMSF trustees had intentions to borrow approximately $13.7 billion via LRBAs, and of that approximately $11.5 billion (83 per cent) was earmarked for property investment. That survey was conducted more than two years ago, and interest appears to have only increased since then. The LRBA market