'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.

  • James Howarth on 15/11/2013 6:22:52 PM

    Making more submissions based on their own interests.

  • Innocent Observer on 15/11/2013 11:48:55 AM

    Without seeing the guidelines for what does and doesn't constitute "good" advice it's impossible for anyone to really comment one way or the other, but I will agree that there is some shocking SMSF advice being thrown around out there. However in my experience it's less the financial planning community pushing the establishment of SMSFs, it's small accounting practices and (more recently) mortgage brokers. But anyway, that's from my own experience so it's more anecdotal than anything, and without hard data it's unclear whether this is Australia-wide or I've just been (unfortunate?) enough to have seen more instances of it.

    I should also point out the rather obvious: for many financial advisers, whether they charge a flat fee or %-based fee, their total fee is usually more or less the same regardless of whether assets are managed via a SMSF, direct, or via a platform. Accountants on the other hand get zip if the client is managed via a platform, a minimal (if any) fee if managed direct, and several thousand (most $2k - $4k p.a.) if held via a SMSF. If we're having the discussion about self-interest, maybe the debate needs to consider where the conflicts actually lay.

    A final point. There is no doubt that the central focus of the ISN propaganda machine is to dismiss the value of advice and paint advisers out to be commission-hungry rip-off merchants. It's this "us and them" culture they WANT to breed. It's their number one marketing tool. But I do think that there is merit in considering the views from all corners of this debate (even if it's from an organisation that have a track record of misrepresentation and wildly dodgy claims on a large scale).

    To this end maybe we could agree on a few guiding principles - whether this be in relation to minimum account size or other limitations. I think that we all (ok, most of us) could agree that a slight restriction of freedom would have a net improvement to the quality of advice being given?

  • James Smith on 15/11/2013 10:11:04 AM

    Here here.
    It is laughable that the ISA ISN still seem to think that they have any credibility or claims on the higher moral ground. Its like the banks advertising more give less take ??? Both delusional.

  • Neil on 14/11/2013 4:18:39 PM

    I stopped reading when I got to ISN. They add nothing and are full of vested interests.

  • Robinson on 14/11/2013 11:23:46 AM

    Lies, dam lies and statistics. Quoted by industry groups who have their own vested interests first and foremost.
    SMSF's are a very personalised investment; that is a word large funds just don't understand - personal.
    2,000 SMSF's a month are established because financial advisers are only interested in generating fees (from property investments too, somehow), from Trustees (who cannot take professional advice?) and they would really be better-off in industry funds or large funds where executives are paid a small fortune, fees are not as clear as they should be, the influence of the unions is suspicious, and members are just a number in their system and subject to the herd mentality of fund managers??? Gimme a break - the record is broken and they are still playing that tune!

  • Alistair on 14/11/2013 10:33:25 AM

    So now we have an attack from the ISN against advisers who dare to suggest that clients with large balances consider an SMSF over an industry fund. Of course SMSF's being the fastest growing sector in superannuation.
    Now why would they think this is an area to attack while also giving advisers a kick for the sake of it.
    They are losing the battle to control funds and this hurts as they are not serving the best interests of the ISN.
    Again who cares about the client.
    Typical head in the sand self interest from a bunch of people that seek to wreak havoc to the advice profession while trying to feather their own nest. Best interest huh ?
    These entities along with the fund managers of old, the life companies of old, the banks massive fines and a kick from Government.
    Don't wait for the regulator as they are still largely asleep.
    Property marketers, share traders, derivative traders, currency traders all are plying their trade in the SMSF world while ASIC sleeps.
    Any FP adviser needs to have the support of government to bring about regulation that drives the function of best interest properly.
    Not merely have the words out their for the marketing.
    Clean up the industry means to drive out the above, put the adviser front and centre to deliver advice and counsel to the client and drive out the stakeholders with their snake oil approach so the FP plays the vital role of looking after the clients interest without the influence of institutions and those with a self interest.
    If the product suits the clients best interest then fine . If it does not it does not. We should be paid for the advice dispensed for investment related advice not for the sale of investment product. As to insurance, a flat level of commission across all insurers where the insurer has to compete for shelf space with the adviser based on product design.
    Adopt these stances and get rid of the kickbacks to folks like the ISN, dealer groups, banks etc as these costs are merely driving the cost of the product upwards. Oh and also kick these large entities with massive fines - a Billion Dollars plus sounds good to me.
    Don't complicate our lives as FP's and kick us when folks like these institutions including the ISN, Banks etc are the main problem and offer no practical real solutions.

  • Wf1 on 14/11/2013 10:19:51 AM

    "Two representatives of industry super funds"

    and i stopped reading..
    I assume it will be another attack on their own industry...

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