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.