Protecting SMSF clients from damaging undisclosed information

As part of its continuing focus on the self-managed superannuation fund (SMSF) sector, the Australian Securites and Investment Commission (ASIC) has released proposed guidance to improve the quality of advice given to investors.

ASIC’s recent review of the sector found there was significant room for improvement in the quality of advice received by clients. In particular, ASIC found that there is a need to improve the disclosure of information that may influence a decision to establish or switch to an SMSF.

Consultation Paper 216 Advice on self-managed superannuation funds: Specific disclosure requirements and SMSF costs (CP 216) contains ASIC’s proposals to impose specific disclosure obligations on advisers. 

They include the need to: 

  • warn clients that SMSFs do not have access to the compensation arrangements under the Superannuation Industry (Supervision) Act 1993 in the event of theft or fraud, and
  • explain other matters that may influence the client’s decision to set up an SMSF.

ASIC Deputy Chairman Peter Kell highlighted the importance of good quality advice for SMSFs given the strong growth of these funds.

‘When it comes to planning your retirement, establishing an SMSF is a very significant decision. We want to help ensure that the SMSF sector is healthy, and that investors make informed decisions about SMSFs,’ Mr Kell said.

‘Our recent surveillance of the sector found that advice was not up to a standard we would like, so we will continue to work with the industry to ensure investors receive good quality, tailored advice from their accountant or financial planner.’

CP 216 also looks at the appropriate level of resources consumers should have before setting up an SMSF.

ASIC commissioned Rice Warner to examine the minimum cost-effective balance for SMSFs when compared with super funds regulated by the Australian Prudential Regulation Authority (APRA). CP 216 includes Rice Warner’s report: Costs of Operating SMSFs. ASIC is seeking feedback on Rice Warner’s findings and on the costs associated with setting up, running and winding up an SMSF.

‘Through our consultation we are looking to encourage further discussion and explore the issues relating to SMSF costs with industry and consumer stakeholders. We think that understanding the costs associated with having an SMSF will help advisers and their clients consider whether an SMSF is a cost-effective option when compared with an APRA-regulated fund,’ Mr Kell said.

‘ASIC does not want to see an influx of trustees who are ill-equipped to cope with the responsibilities and obligations of running a SMSF.’

ASIC established an SMSF taskforce in September 2012 to focus on risks in this sector, including potentially inappropriate geared investment strategies, increasingly aggressive advertising and investment fraud.

This is the second major project of the taskforce, the overarching aim of which is to ensure that:

  • only those investors for whom an SMSF is suitable are advised to establish an SMSF, and
  • investors receive good quality advice and services from gatekeepers such as accountants and financial advisers.