'5% of trustees understand'

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Financial advisers are concerned the vast majority of SMSF trustees fail to understand their responsibilities and liabilities.

Wealth Professional spoke to one experienced Melbourne adviser, who did not want to be named, who believes less than 5% of trustees fully understand what is required of them.

“The majority of the SMSF marketing pitch is complete rubbish. I have been heavily involved in SMSF advice for over a decade, and in the past five years I have closed down probably five SMSFs for every one I have helped open,” he said.

“A lot of trustees are quite blasé when it comes to their responsibilities, cutting corners and expecting that the ATO won't penalise them because their breaches are only ‘minor’.”

The adviser said many SMSF owners have told him they have been “cornered” into setting up a SMSF by their accountant, despite the fact there is little a SMSF can do that an APRA regulated superannuation fund cannot.

“I have nothing against accountants; however the rationale behind the establishment of most SMSFs is fundamentally flawed.  For example, they compare costs as their accounting or audit fees versus the total admin and investment costs to an investor through a retail fund.  

“This completely disregards that many SMSF owners then need to run a platform or other structure to consolidate, track and monitor their investments. When I discuss this with accountants many of them genuinely believe their advice is providing a benefit to the client.”

As accountants are responsible for the establishment of the bulk of SMSFs, this adviser thinks proper education and SMSF accreditation needs to be focused on them.

Meanwhile, the SMSF Professionals’ Association of Australia (SPAA) said it was surprised ASIC had not updated its rules for the training of specialist SMSF advisers.  

SPAA made a submission to ASIC on its Consultation Paper CP216, saying it was essential SMSF advisers have competencies and skills to better inform potential trustees about the suitability of SMSFs to their circumstances.

“In line with this SPAA has consistently argued that the proposed update of RG 146 for the training of advisors should include a specialist SMSF topic if advisers wish to provide advice on SMSFs. This is the reason why SPAA has built an SMSF profession,” said CEO Andrea Slattery.

SPAA was also surprised ASIC has not proposed to update rules about quality of disclosures made to potential SMSF trustees about the risks in being a trustee.

“We believe that including an SMSF topic in RG 146, and recognising it as a specialist area of superannuation advice, will increase the level of professionalism and understanding of financial advisers who advise on the establishment and operation of SMSFs, leading to increased consumer protection,” Slattery said.

But the Institute of Chartered Accountants Australia (ICAA), who also responded to ASIC, questioned whether the consultation’s proposals are too “narrowly focused” in the wrong area.

It said risks for potential SMSF trustees lie not with advice from financial advisers and professionals but with those who are not seeking any advice or receiving advice from non-professional and unregulated sources.

ICAA said it encouraged “appropriate consideration” from ASIC before further compliance is required from advisers.