A recent ASIC investigation has revealed a danger that the new SMSF “speeding fines” could see trustees hit with heavy penalties for poor product choice if they are not careful.
This is according to Peter Townsend, principal of Townsends Business & Corporate Lawyers.
He has put out the warning in light of the plight of SuperHelp, an SMSF administrative service that ran an advertisement last year for free SMSF and pension setups.
Although stating “conditions apply”, these conditions were not part of the advertisement and could only be located on the SuperHelp website.
An ASIC investigation concluded that the offer of a free SMSF setup was conditional on the payment of a one year subscription fee before the SMSF would be established.
By using the term “free”, ASIC found that SuperHelp had dispersed false or misleading advertising that could lead to consumers making “inappropriate financial decisions”.
The failure to clearly state the associated fees and products required to access the “free” service could cause consumers to believe the free setup was a true reflection of the cost of the service.
The company was ultimately required to pay a $10,200 infringement notice.
“As the saying goes, there is no such thing as a free lunch, so when making decisions regarding SMSFs it is vital that the true cost of the service is considered, and not only in a financial sense,” said Townsend.
“This is not the first time ASIC has been required to investigate advertisements in relation to SMSF products. Earlier this year Media Super Limited was also fined for producing potentially misleading information about the performance of its funds against SMSF products.”
When considering “free” or discounted products, it is important to consider a number of factors, he said.
- The level of the service, both initial and ongoing
- The quality of the product or service
- Whether the service or product is more restricted or narrow than normal
- What other conditions are attached to accessing the product or service
- Whether the purchase will lock you into a particular provider in the future
The Australian Taxation Office’s (ATO) looming new penalties - fondly referred to as “speeding fines” - will commence on 1 July 2014. These will give the ATO the power to impose administrative penalties on trustees, which cannot be paid for or reimbursed from assets of the fund.
It would also allow the ATO to issue rectification orders or force trustees to attend compulsory education courses at their own expense.
“As the new penalty regime for SMSFs draws closer, advisers and their clients need to be aware that poor product choice could see trustees being hit with heavy penalties if they are not careful of fund compliance,” Townsend said.