Storm Financial ‘could have been avoided’: LPAC

Having analysed real returns of share portfolios initiated between 1 January 1994 and 30 October 2014, Dr Rumble found that share gearing using these loans “boosted the performance of a range of different share portfolios”.

“Even more interesting was the finding that small, concentrated portfolios perform better than larger portfolios when a protected equity loan was used,” he said.

Dr Rumble – who is also head of learning at the SMSF Owners’ Alliance – said the research indicates advisers and SMSF investors need to reconsider gearing as part of a well-rounded investment strategy.

“The financial planning industry should carefully consider the use of protected equity loans by SMSF as an important tool to help deliver enhanced returns with risk mitigation embedded within these products,” Dr Rumble said.

“Margin lending disasters like Storm Financial could largely have been avoided if protected equity loans were used.”

With the Financial System Inquiry due to hand down its final report in coming days, Dr Rumble said the findings of his research suggest “calls to ban SMSF gearing are just plain wrong”.