SMSF advice fails ASIC scrutiny
In a move which signals the likelihood of the self-managed superannuation funds (SMSF) sector being scrutinised by the Royal Commission, the Australian Securities and Investments Commission has released a scathing report suggesting around 90 per cent of financial advice on setting up a SMSF was non-compliant.
The report has already generated a defensive response from the SMSF Association.
The ASIC Report 575 was based on a review of 250 client files randomly selected based on Australian Taxation Office (ATO) data and assessed compliance with the Corporations Act’s “best interests” duty and related obligations, with ASIC stating that in 91 per cent of files reviewed the adviser did not comply with Corporations Act’s “best interests” duty and related obligations.
It said the non-compliant advice ranged from record-keeping and process failures to failures likely to result in significant financial detriment.
It detailed the failings as follows:
- In 10 per cent of files reviewed, the client was likely to be significantly worse off in retirement due to the advice;
- In 19 per cent of cases, clients were at an increased risk of financial detriment due to a lack of diversification.
Commenting on the report, ASIC deputy chair Peter Kell said the standard of advice on SMSFs had to be improved.
“A healthy and robust SMSF sector is an important part of our super system,” he said. “However, it is clear lots of people are setting up self-managed super funds without knowing whether this is the best option. The financial advice sector has significant work to do to lift their performance on this issue.”
He said ASIC would be taking follow-up regulatory action, in particular where consumers had suffered detriment.
The report revealed that ASIC also conducted market research which included interviews with 28 consumers who had set up an SMSF and an online survey of 457 consumers who had set up an SMSF, which found many people did not understand fully the risks of SMSFs, or their legal obligations as trustees.
The online survey revealed:
- 38 per cent of respondents found running an SMSF more time-consuming than expected;
- 32 per cent found it to more expensive than expected;
- 33 per cent did not know the law required an SMSF to have an investment strategy; and
- 29 per cent mistakenly believed that SMSFs had the same level of protection as prudentially regulated superannuation funds in the event of fraud.
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