ASIC fears influx of 'ill-equipped' SMSF trustees

ASIC is unhappy with the overall state of the SMSF sector and has issued a set of proposed improvements aimed at improving the quality of advice given to investors.

The regulator’s recent review of the sector found there was ‘significant’ room for improvement in the quality of advice, particularly when it comes to disclosure of information that may influence a decision to establish or switch to an SMSF. These 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’s statement coincides with concerns raised by the media over potentially dodgy SMSF property investment schemes, including last week’s Australian Financial Review (AFR) analysis of Wollongong brokerage Laura Dean’s ‘free holiday’ offer for new SMSF clients. As reported by Australian Broker, AFR claims laws intended to stop financial advisers from receiving commissions and replace them with fees are likely being ‘undermined’ by products and services where they don’t apply, such as property sales.

ASIC deputy chairman, Peter Kell, says good quality advice is crucial 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.

“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.”

ASIC commissioned Rice Warner to examine the minimum cost-effective balance for SMSFs when compared with super funds regulated by the APRA and 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,” says Kell.

“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.”