ASIC calls for greater disclosure from advisers

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As part of its continuing focus on the self-managed superannuation fund (SMSF) sector, ASIC today 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 contains ASIC’s proposals to impose specific disclosure obligations on advisers.

The report included reference to Trio investors, who it says were not aware of the risks associated with investing in SMSFs.

“[M]any Trio investors were not aware they were not entitled to compensation. This poses the fundamental question of what advice, if any, was provided by planners and accountants. The committee is particularly interested in establishing what advice was given to SMSF investors in Trio Capital by financial planners and advisers,” the report stated.

ASIC says that the guidelines “largely reflect the advice on establishing an SMSF that advisers should already be giving to clients”.

Under the proposed guidance, advisers must:

  • Explain the role, responsibilities and obligations of an SMSF trustee in running an SMSF
  • Discuss insurance issues with clients because this may influence an investor’s decision to establish or switch to an SMSF
  • Explain that SMSF trustees must set and follow an investment strategy that ensures the fund is likely to meet the members’ retirement needs (e.g. deliver an adequate level of income) with respect to superannuation and taxation laws
  • Explain to clients that, to run an SMSF effectively, clients should consider whether they have enough time and the appropriate skills and financial experience to make the best investment decisions for the fund and to meet all of their obligations as an SMSF trustee.
  • Explain to clients the costs associated with managing an SMSF, and also provide clients with an estimate of these costs.
  • Provide clients with information about a possible exit strategy for the SMSF
  • Explain to clients that it is the responsibility of SMSF trustees to update their knowledge on any changes to the law and their compliance obligations

“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,” said ASIC deputy chairman Peter Kell.

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 APRA, and included the report in CP 216. The regulator is seeking input from advisers around the costs relating to SMSFs.

  • IFAdviser on 16/09/2013 1:19:14 PM

    Dear ASIC, please stop crucifying the Advice industry when clients are making ill informed financial decisions, thankyou

    ASIC wants Advisers to up their game and provide more disclosure to clients establishing an SMSF when the reality is that most SMSF's are setup without any Financial Advice (other than provided by the accountant...hang on, they're not Advice providers are they???)

    If the regulator is concerned with Advice to SMSF trustees then maybe they should start focusing on the industries that are providing unlicensed Advice and influencing a clients decision to use an SMSF including the accountants, mortgage brokers and real estate agents.

  • Investor on 16/09/2013 1:20:01 PM

    I agree with the article, however i wonder about the motivation. Is it just a coincidence that the ISN are complaining about their captors escaping when they get the first chance and ASIC now cracking down on SMSF. the inclusion of Rice Warner also makes me think it would have to be a big coincidence.

  • Gordon Black on 16/09/2013 1:24:46 PM

    Well, well, I wonder if unlicensed accountants who set up funds will be required to meet these conditions?

  • Ron on 16/09/2013 1:54:32 PM

    Interesting. Pity won't apply to all those practitioners not required to be licensed re SMSF's for nearly 3 years ie: Tax Agents & Accountants. Close the net on this activity that's been going on for years (establishment with 'no advice') and this will bring some much needed progress to protect consumers.

  • Jon Dixon on 16/09/2013 2:00:05 PM

    Hello ASIC! I think this should be for ALL professions that set-up, manage and advise on SMSF and should be done yearly !
    A comparison of fees for best interest should be mandatory yearly !
    Geez accountants would soon find out what compliance is !

  • Warren on 16/09/2013 2:09:18 PM

    Here we go again - after the event ASIC and then add to regulation in the Industry because of crooks. We and the client pay and the crooks ??

  • Steve C on 16/09/2013 2:25:40 PM

    Firstly the dot points contained in the article are those areas which are covered when providing advice regarding the setup of SMSF by any competent Financial Adviser.
    It just makes me wonder, with the prolific flogging in the Real Estate sector for purchasing property in an SMSF environment, just how many Estate Agents or Mortgage Brokers actually go through this very important process (same with Accountants to be honest, just to set up one more entity to provide a return for)???
    Lets not crucify Financial Advisers again for the plethora of other so called professionals who are doing the wrong thing purely to line their own pockets.

  • Cameron on 17/09/2013 6:52:33 AM

    Every comment seems to have a go at accountants and mortgage brokers, whilst i do agree, you must remember that a fund can be set up online for peanuts these days with no advice or support from anyone in any industry. Clean up the online floggers of SMSFs and we may well just start to get onto a level playing field

  • GAB on 17/09/2013 2:35:45 PM

    Maybe recommending a SMSF should just be banned. Self managed means just that...self managed. It starting to look more and more like a dodgy racket.

    If an investor wants to buy a property or warrants or whatever in super they can take the risk themselves an do do a compulsory assessment on ASiCs website before that can get issued with a trust deed.

    I'm already getting sick of banks asking for financial advisers to sign off on SMSF property loans. Now we get held liable for not explaining the risks as well, even if we didn't recommend the strategy.

  • Realist on 18/09/2013 10:54:02 AM

    According to the Susan Bell Research less than 25% of respondents think that financial planners act with integrity. Is it any surprise that more regulation is proposed? Perhaps if we spent more time getting our house in order (and less time attacking lawyers and accountants) we could build an advice profession that consumers (and the Regulator) can have confidence in.

  • Sean on 18/09/2013 10:58:21 AM

    There is nothing in the guidance paper that good advisers aren't already doing. Read the paper and the supporting material before you leap to judgment. ASIC are far less proscriptive than some commentators suggest and in some respects are only reinforcing APRA and ATO views. I don't imagine any SPAA member would have any difficulties with the suggestions. Check out the Rice Warner Research (and ASIC's recent activity) to appreciate why guidance is needed.

  • Coastie on 18/09/2013 3:37:51 PM

    I'm sure that any decent financial planner is doing all of these things. I know that my AFSL is very anal about what goes into/constitutes sound SMSF advice. I see the real issues lies with people who are setting up their own SMSF's - either online or by simple instruction to an accountant. Many will have been sucked in by ISF advertising that financial planners are 'bad' and so avoid them when setting up an SMSF. Hence no advice, no real strategy, and definitely no insurance.

  • James Howarth on 20/09/2013 10:46:30 AM

    I dont believe an SMSF is ever better than a regulated super fund, unless one wishes to own their commercial premises inside it. I have heard accounting fees of $7000 + for a fund with just $200,000. The reality is even with a SMSF the personal still needs access to the market, so the accountants fees are not instead of, they're as well as.

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