The public are increasingly signing free SMSF deeds without understanding they are being trapped into long-term contracts with extra costs, says a leading SMSF lawyer.
“The whole concept of free deeds is about getting the client to sign up to something else,” Townsends Business & Corporate Lawyers principal Peter Townsend tells Wealth Professional.
“Yes, you may not be paying for that deed, but you’ll be paying for something else later.”
Townsend is a superannuation lawyer with over 30 years’ experience, and says with more than 90 changes in SMSF laws, regulations and practices in last year alone, it is not possible to produce cut-price documents that remain current and compliant.
He says it’s impossible to stay on top of all the developments in the SMSF sector with a dirt-cheap, unmonitored legal document.
“There is too much to review and upgrade in a planned, coherent way to make free trust deeds a viable alternative. For example we carry out a full audit of the SMSF sector every two months in order to ensure that our clients’ deeds are right up-to-the-minute.”
The recent collapse of online document provider Charterhill has highlighted the problems of budget solutions to complex SMSF client needs, and Townsend worries that the public are losing money by signing up to ‘free’ services.
Charterhill – whose assets were frozen last week by the courts – was selling products and attaching free SMSF deeds and clients were not getting advice as to whether they were suited to it or not, he says.
“As we understand it Charterhill provided investments in real estate and if you signed up you could do it through an SMSF with a free deed.
“It’s loss leading to encourage people to invest through them. To say it is a ‘free’ deed is misleading, as you sign up to something else. It’s not illegal but ASIC recently warned against it.
“Charterhill were not specialist deed providers and companies like that may not be keeping deeds up to date. Why would you set up an SMSF from someone with an agenda rather than a specialist?"
Townsend recommends consumers purchase SMSFs through an adviser who is a member of a reputable association and not through a direct offer from product sellers advertised online.
“The public often don’t understand what the responsibilities of being a trustee entail.”
He has seen consumers pay annual costs of up to $2000 after an initial hook of a free deed.
In comparison, Supercentral – one of Townsend’s clients – charges $275 to set up a new SMSF and does an annual update for $125.
“It’s not expensive. The whole point is that you can get documents from good quality sources and there’s no need to use something that says it is free but ends up having lots of hidden costs.”
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