'Unacceptably poor' advice criticised

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Two representatives of industry super funds have told ASIC advice given to self-managed superfund trustees is inadequate and more education is needed to ensure trustees are capable of managing their financial affairs as they age.

This week, the Australian Institute of Superannuation Trustees (AIST) and Industry Super Australia (ISA) lodged a joint submission to the Australian Securities and Investments Commission (ASIC) Consultation Paper 216, which discusses SMSF advice, specific disclosure requirements and associated costs.

The two bodies criticised the “unacceptably high level of poor advice” trustees get about setting up and administering the funds.

ASIC's review of advice provided to SMSF trustees showed only one piece of advice was characterised as good, with close to 30% being deemed poor by the regulator – and this is not good enough, say AIST and ISA.

On-going education is needed for SMSF trustees to make sure they are capable of making important financial decisions, the two industry bodies say.

“There is a case for enhanced education of SMSF trustees to ensure that they are fit and proper to fulfil their important roles and importantly remain capable of fulfilling their duties.

“More than 60% of SMSF trustees are past preservation age. It is important that SMSF trustees remain capable of exercising their responsibilities and have an exit strategy in the event that trustees are not capable of this in the future.”

ISA and AIST also say the cost of establishing and maintaining a SMSF exceeds that outlined by the analysis undertaken by Rice Warner Actuaries on behalf of ASIC. They instead point to new research using ATO data from more than 200,000 SMSFs, between 2008 and 2010.

An analysis of the new work finds that only the very largest SMSFs would be cheaper to operate than the most expensive accumulation industry superannuation funds, the submission states.

That data also shows two thirds of SMSFs are inappropriately diversified, with only one sixth having a reasonable level of diversification and a further one sixth having a somewhat reasonable level of diversification.

ISA and AIST also note SMSFs have highly undiversified investment portfolios, resulting in high risk investment strategies with real property investment.

ISA represents more than five million Industry SuperFund members, while AIST looks out for industry staff and trustees of nearly two-thirds of the Australian workforce.