SMSFs have become goldmine for opportunist marketers, highlighting serious loopholes in the regulatory system – and reputable financial planners are being tarred with the same brush.
This is the stark warning to come from Chan & Naylor director of financial planning David Hasib, as he highlights the risks that rogue advisers present to trustees of the 600 SMSFs that are opened each week.
He has claimed that regulators are paying little or no attention to the many underqualified advisers who are operating in the SMSF space, or even the growing number of promoters with no qualifications to bear – all of whom share responsibility for creating an environment of risky decision-making which is placing increasing numbers of investors in dire financial straits.
“Australia’s financial landscape has grown dramatically in its diversity and complexity over the years, yet education requirements for advisers have lagged,” said Hasib.
“It should not be acceptable to play the role of financial adviser in the general sense – the industry is evolving so quickly that it requires specialised advisers that are up to date and add real long-term value to clients.”
According to Hasib current regulations allow anybody to promote SMSFs to potential investors, with rogue advisers failing to alert investors of common pitfalls such as:
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whether the investor has sufficient money for the fund to be beneficial;
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what investment options are available or most suitable;
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the trustees’ roles and responsibilities;
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additional costs incurred in the changeover and the benefits that are lost, such as personal insurance cover previously obtained under group rates with automatic acceptance levels.
He added that ASIC has acknowledged inadequacies in the current regulatory framework, and will go some way to tightening qualification requirements for advisers in the upcoming FoFA reforms.
However, he believes that urgent action is needed to ensure trustees don’t throw away life savings because bad advice is allowed to slip through the net in the meantime.
“A quick internet search will reveal the growing numbers of online spruikers, bearing no relevant qualifications at all, who are cashing in on the new SMSF market,” said Hasib.
“The problem is detrimental to those on the receiving end of uninformed advice, as well as the reputation and integrity of an otherwise healthy industry which will find itself tarred with the same brush.”
He has suggested, therefore, that the following key compliance guidelines are put into place for SMSF advisers:
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each adviser must hold a Diploma or (preferably) Advanced Diploma in Financial Planning – including a sub-competency in the area SMSF;
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increase CPD hours from 30 to 40 hours per annum, in line with FPA requirements, with relevance to their core specialist area (i.e. SMSFs);
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introduce a mandatory yearly exam to ensure advisers’ knowledge is up to date with current changes in law and legislation.
“Penalties should be put in place for those continuing to advise without the required qualifications. The law must be strong enough to impose penalties that compensate the client, ensuring enforceable undertaking by the adviser to bring them up to speed. And penalties should be severe, ranging from an industry ban to monetary penalties, or even criminal charges for serial offenders.” said Hasib.
“Given the likely size of the future SMSF sector, the onus should be on the entire industry to address its formative flaws here and now. After all, financial advisers are entrusted with their client’s financial livelihood.”