Recently, ASIC investigated the SMSF establishment compliance for 100 funds sourced from 12 advice licensees that they believed were high risk.
They reported that 62 failed to comply with the best interests duty while 27 files raised concerns about client detriment.
Importantly, as this was a targeted investigation, ASIC confirmed that the report was not intended to be representative of the financial advice sector more broadly.
They provided eight action points for advisers and four action points for licensees to improve their practices when it comes to SMSF establishment advice.
These included:
- Do not mis-sell SMSFs on the basis of control
- Consider the suitability of an SMSF for the client
- Do not recommend an SMSF if it will expose the client to unnecessary and inappropriate risks
- Prioritise the client’s interests over those of the financial adviser, advice licensee and associates
- Consider the client’s need for suitable and affordable insurance
- Include the basis of the advice
- Use professional judgement
- Keep good records
It is vital that SMSFs are established for the right reasons and that prospective new SMSF trustee/members be educated. To this end, we provide our Alliance Partners with access to a several page, tailored, comparison report which compares the costs and features – both advantages and disadvantages – of SMSFs and APRA funds. Some choose to incorporate it into their advice documents. Our animated video is also useful.
Undoubtedly there have been SMSFs established that, on a fair assessment of the facts should not have been, but I wonder how many large balance APRA fund members would be better served in an SMSF environment. I know of licensees that require their representatives to provide an annual justification to maintain an SMSF but none who require the same justification to remain in an APRA fund. I wonder if ASIC will ever consider this?
