'Free' SMSF services under fire

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The old adage ‘if it seems too good to be true, it probably is’ seems to be applying to a number of online SMSF provider advertisements.  

Both the Australian Tax Office and Australian Securities and Investments Commission are cracking down on SMSF service providers which offer ‘free’ services but trap consumers into long-term contracts with hidden costs.   

ATO director of SMSF regulatory and income tax products Nathan Burgess warned those at the Financial Advice in Super Symposium in Melbourne on Friday about the dangers of signing up to these services, often advertised on the internet.

Burgess said ATO will become more proactive in its monitoring of the SMSF sector, paying attention to seminars, conferences, and posts on internet bulletin boards.

David Storm, head of platform strategy, sales and service at online SMSF administrative solutions provider Onevue, said his company is increasingly noticing this issue.

Some SMSF companies are advertising free services but the “devil is in the detail”, he said.

“They are putting something out there to attract clients, such as free establishment fee or annual cost, but there are vastly reduced levels of service or the client is locked into multi-year contracts.”

OneVue generally has professional advisers as clients and does not have to compete against companies seeking the attention of the public looking for a good deal over Google or other search engines.

But Storm thinks consumers are being trapped and the problem is only going to get worse.

“It will start to proliferate and there needs to be something done about it. We support ATO’s surveillance of this.”

Deed Dot Com founder and technical SMSF director Manoj Abichandani agreed SMSF providers advertising free services are becoming a problem for genuine providers trying to keep costs down for consumers.

“As the SMSF sector continues to grow and command a greater share of the super pie, everyone – from the AMP down to fly-by-night operators advertising ‘free set up’ or ‘free SMSF administration if you buy my property or buy shares from me’ – is climbing aboard the gravy train,” he said.

“The casualties of this feeding frenzy could very well be the accountants and advisers who have been loyally and diligently servicing the needs of genuine DIY super clients for the past 30 odd years.”

The recent collapse of one-stop SMSF shop, the Charterhill group of companies, should be cause for concern – particularly the ramifications for those professionals who referred clients to Charterhill, said Abichandani.

“Simply by association, this focus could do untold damage to the truly reputable SMSF professionals…Advisers, accountants and their lawyers need to be very careful about who they form partnerships with. It is very easy to set up shop and call yourself an SMSF expert, without having very much substance behind your claims.”

ASIC is also cracking down on the issue, with spokesman Daniel Wright saying special care should be taken when using terms which will have a particular connotation to consumers, to make sure product characteristics are consistent with the representations inherent in the product name.

“Advertisements that draw consumers in by using terms like 'free' should not have set up or transaction fees hidden in the fine print.  Particular care should be taken when making claims about projected savings that consumers might make, when no actual savings have been achieved,” he said.

“Advertisements should give balanced information to ensure the overall effect creates realistic expectations about a financial product or service.”

In November 2012 ASIC released updated Regulatory Guide 234, which contains good practice guidance to help financial product providers comply with their legal obligations not to make false or misleading statements in advertising.  

Wright could not provide figures on how many SMSF providers ASIC is currently investigating for advertising ‘free’ services but with hidden costs.

SMSF Professionals' Association of Australia’s technical and professional standards director Graeme Colley recently warned of the dangers of accepting offers of free establishment services.

"It may be linked to an SMSF borrowing or may be used as a 'catch' for a more expensive on-going services that locks you in.

"Although establishing the SMSF may be free, the ongoing costs may be higher than what is available elsewhere in the market. Remember, too, some of these ongoing services may be available on a user pays system.

"The ongoing services may limit the type of investments into which the fund can invest such as a small range of shares, cash and fixed interest. Alternatively, are you signing up for a package, some of which you do not want or will ever use?"

He pointed out while a free establishment service is “not wrong per se”, people need to fully understand what's involved.

"That old saying, there's no such thing as a free lunch, comes readily to mind."