Have Your Bank’s Lawyers Prepared Your Super Gearing Legal Documents?

A number of our SMSF clients have told us recently that when arranging a loan from their bank the Bank advised them that it would be cheaper to have the holding trust deed and associated documents prepared by the Bank’s lawyers.  The rationale, we are told, is that the fees for a further legal review to be conducted for these documents during the lending process would be charged at a lesser rate than if another firm prepared the documents.

There are a number of issues when a Bank’s lawyers prepare documents for an SMSF client.

Do the Bank’s Lawyers have to prepare the documentation?

One client contacted us to confirm whether our firm is able to prepare documentation for the transaction if the SMSF is borrowing from a particular Bank.  This client was under the impression that when borrowing from a particular Bank, their SMSF was obligated to use the Bank’s lawyers to prepare the Holding Trust deed and other Limited Recourse Borrowing (“LRB”) documentation for the Fund.  Clearly, this is not the case; it is of vital importance to have independent legal advice.

Lawyers acting for more than one party

If the Bank’s lawyers were to act for the Bank and your SMSF for the same transaction it is generally accepted practice (Rule 9 of the NSW Solicitors Rules 1995) that the lawyer must make both parties aware of the fact that they are representing both parties and seek both parties’ consent. 

If you are not asked to consent, this means the Bank’s lawyers are not acting for you.  If they are not acting for you then you cannot rely on their work and would have to have it checked thereby negating the alleged fee saving.

We are told that when the Bank’s lawyers have prepared these documents, if a Trustee seeks clarification or advice on the documents, the Trustee is advised to engage a different firm to provide legal advice to it on the documents.  The Bank’s lawyers cannot advise you on the documents they have prepared if they are not acting for you.  These additional legal costs for engaging the different law firm appear to negate any perceived reduction of fees by the Bank’s lawyers.

The importance of independent legal advice

Much like the importance of your clients obtaining informed and well-constructed financial advice from you, it is important that the Trustees of an SMSF seek legal guidance and assistance from a lawyer who is acting on their behalf, and with the compliance of their fund being of paramount importance.  If documents are prepared by a party who is not engaged to act on behalf of the Fund how will your clients navigate the pitfalls of compliance?

Professional Indemnity Insurance

One of the protections that clients of an independent law firm gain is access to that firm’s professional indemnity insurance if something goes wrong.  Your clients won’t have access to that if the Bank’s lawyers are not acting for you.  Any mistakes that are made could leave them high and dry.

Extra Advice on the Process

Your own SMSF lawyer can help you not only with the LRB documents but with ancillary advice that can be so important in understanding how to process your fund’s LRB.  Often this advice can be by way of a simple phone call.  You won’t get that from the Bank’s lawyers, who will tell you it is not part of their brief (and they probably don’t know the answer anyway).

We regularly talk to new SMSF clients who seek our help because the standard LRB documents they purchased from an online document provider come with no other assistance or ‘after sales service’ of any kind.  It is the same when you deal with the Bank’s lawyers.

For further assistance contact Townsends Business & Corporate Lawyers on (02) 8296 6222 or email info@townsendslaw.com.au .