The Australian Securities and Investments Commission's (ASIC's) so-called Self Managed Superannuation Fund (SMSF) Taskforce has revealed that a targeted examination of SMSFs with member balances of $150,000 or less entailed only one piece of advice which was graded as "good".
This disturbing outcome has been revealed by ASIC commissioner Greg Tanzer in an address to the Tax Institute last week in which he said the taskforce had reviewed over 100 investor files relating to the establishment of an SMSF, the majority of which had a fund balance of $150,000 or less and included features such as older members, members with a low income, and borrowing or investment in a single asset class such as real property.
Tanzer said the taskforce then rated the personal advice involved as being "good, adequate or poor".
"Overall, we concluded that the majority of investors in the sample reviewed received adequate advice," he said. "We graded one piece of advice as good."
While pointing out the factors which contributed to the provision of good advice, Tanzer said the taskforce had identified pockets of poor advice, adding that "much of this advice involved recommendations that investors set up an SMSF to gear into real property".
"Where this advice was inappropriate for the individual investors, ASIC has been following up and taking regulatory action," he said.
"Through our file reviews, we found that there is room for significant improvement in aspects of the SMSF advice-giving process. Where we found problems with the advice, it tended to be in the following areas:
* the advice was not sufficiently tailored
* replacement product disclosure was absent or inadequate
* insurance recommendations were absent or inadequate
* an inappropriate single asset class was provided to investors
* suitable alternatives to an SMSF were not considered
* there was inadequate consideration of the investor's long-term retirement planning objectives.
"Notably, we also found that investors were not warned about the very real risk of not having access to a statutory compensation scheme in the event of theft or fraud. Going forward, this will be an area of focus for us. We expect to see advisers warning investors about this risk," Tanzer said.
