Advisers will have to disclose a number of specific facts when providing self-managed super fund (SMSF) advice, such as lack of compensation arrangements and costs associated with running an SMSF.
These are the rules the Australian Securities and Investment Commission (ASIC) is asking to impose via its newly released consultation paper (CP) 216, Advice on SMSF: specific disclosure requirements and SMSF costs.
The regulator is proposing all financial planners providing SMSF advice should warn their clients that they would not have access to the compensation arrangements under the Superannuation Industry (Supervision) Act 1993 in the event of theft or fraud.
Furthermore, ASIC wants advisers to tell clients about specific duties, obligations and risks associated with running an SMSF, as well as the need to develop and implement an appropriate investment strategy at the time the advice is given and regardless of whether the advice will be set out in a Statement of Advice.
According to the industry watchdog, there is a great need for advisers to tell clients about the time, commitment and skills needed to run an SMSF effectively.
ASIC released the consultation paper after its recent review of the advice provided found significant "room for improvement" in the quality of advice provided to SMSFs.
"Our recent surveillance of the sector found that advice was not up to a standard we would like, so we will continue to work with the industry to ensure investors receive good quality, tailored advice from their accountant or financial planner," said ASIC Deputy Chairman, Peter Kell.
ASIC had commissioned Rice Warner to examine the minimum cost-effective balance for SMSFs when compared with APRA-regulated superannuation funds, also proposing to provide guidance on how the cost should be considered by financial advisers.
Rice Warner found a balance less than $100,000 would not be competitive in comparison to funds regulated by the Australian Prudential Regulation Authority (APRA), stating SMSFs of this size would only be appropriate if they were expected to grow to a competitive size within a reasonable time.
A balance between $100,000 and $200,000 could be competitive with more expensive APRA-regulated funds "if the trustees undertake the the broader investment and administration functions", according to Rice Warner.
Balances between $200,000 and $500,000 could provide equivalent value with APRA-regulated funds.
"When it comes to planning your retirement, establishing an SMSF is a very significant decision," Kell said.
"We want to help ensure that the SMSF sector is healthy, and that investors make informed decisions about SMSFs," he added.
"ASIC does not want to see an influx of trustees who are ill-equipped to cope with the responsibilities and obligations of running a SMSF."
Submissions on the consultation paper are open until 11 November with ASIC aiming to release new regulatory guidance in February 2014.
