Speaking at last week’s Financial Services Institute of Australasia (Finsia) conference, ASIC senior executive leader, financial advisers, Louise Macaulay said there were a number of reasons behind the regulator’s apparent fixation on SMSF professionals.
“We think [SMSFs] are a very effective retirement saving vehicle for the appropriate person [and] we are doing a lot of work in this area for two reasons,” Ms Macaulay said.
The first reason listed by the regulator was that ASIC wants to “support advisers in this area” by ensuring high quality of advice, while the second concern – which Ms Macaulay described as “not an idle concern” – was the emergence of “unscrupulous operators interested in making a buck or even outright fraud”, who are attracted to the prosperous sector.
“So those are our priorities: How can we assist SMSF advisers to give better advice? And how can we stamp out fraud and inappropriate conduct?
“We want to safeguard the reputation of this sector, which is why we established our taskforce.”
The comments indicate the regulator views the sector in a relatively positive light, despite some commentators suggesting that ASIC’s recently-proposed additional disclosure requirements as signs of an “anti-SMSF agenda”.
Financial services lawyer Peter Townsend said that advisers specialising in SMSFs are increasingly becoming victims of ‘naysayers’ – and, chief among them, the corporate regulator.
“It saddens me to see that ASIC is buying into these negative arguments by going back to its usual solution of making advisers create more paperwork – more disclosure requirements, more documents that few read or understand, even more transference of liability to advisers – and all to solve a problem that doesn’t really exist,” Mr Townsend said.
“Instead of spending time ensuring advisers tell all investors in SMSFs that they don’t have access to the statutory compensation scheme for theft or fraud, maybe ASIC could spend more time ensuring that this theft and fraud doesn’t occur in the first place,” he added.
If ASIC were serious about supporting the SMSF sector they would be rewriting the “in house” investment rules and the “special income” rules to make it clear an SMSF can have a wholly owned subsidiary company running a separate trading business from ones the members are actively working in. The current “in house” rules and possible penalty tax on SME dividends virtually force SMSF trustees to invest in listed equities rather than take minority positions in unlisted companies. This distorts the flow of capital away from the SME sector. This reduces innovation, lowers social returns to investment and increases risk by over-reliance on “too big to fail” companies. Where is Mr Billson on this?
Dr Terry Dwyer
Dwyer Lawyers
http://www.dwyerlawyers.com.au
A question. How many contributors here have EVER taken independent financial advice when buying real estate in which they have a beneficial interest?
Second question. How many contributors here have given such advice to someone buying a home or even an investment property in either their own name or say a unit trust?
So why the mad desire to control a trustee when they buy within a SMSF?
In terms of reducing fraud and improving prudential behaviour some suggestions would be
1) total ban on planners and accountants receiving any commission/kickback whatsoever from property vendor (or their agent)
2) it is very prescriptive but limit gearing to 70% residential and 60% commercial. This should lead to most properties being positive geared which offers good protection to investors if they fall ill or lose jobs. Indirectly helps on the low balance problem too. ( those LVRS could need to be lower)
3) as much as it is only a 15% tax saving perhaps ban deductibility off negative gearing in SMSF’s to eliminate that type of thinking altogether.
Peter Townsend is right. When I inform potential SMSF trustees there is no Statutory Compo for SMSFs in event of fraud they essentially say “well duh, of course not if you are taking control of your own money” and wonder why I am stating the bleeding obvious at them. I am not convinced ASIC understands the mind of the independent investor and as bad as it was, is allocating too much importance to the Trio Capital story.
Peter, you’ve nailed it. However ASIC is only interested in preserving their jobs and not really looking at what they should be doing. They’re full of lawyers who have never had a real job.
[quote name=”Peter OToole”]Richard – your suggestion might well help to reduce some of the problem[/quote]
Hi Peter. I just saw your original comment. It should be fairly easy for ASIC to limit accountants’ roles to deals that have been ‘brought to them’ by a client (and enforce the rule). Once they’re involved from the marketing stage (as you say) it’s all too murky.
As for the ‘need’ for someone to not have an SMSF one day, go see their accountant (or adviser), and end up with an SMSF with a leveraged property a short time after… It’s pretty clear what’s happening here and it ain’t a person taking control of their retirement.
There’s a host of things that ASIC could do to prevent this sort of shenanigans without affecting anyone with a vaguely sensible approach to SMSFs or investment. But I suspect they’re too busy at work on another ten thousand page disclosure template!
Richard – your suggestion might well help to reduce some of the problem
Well put Peter. I wonder if it has anything to do with the fact that investor protection and enforcement is expensive for ASIC, whereas disclosure is only expensive for the advisor/investor?
If unscrupulous property spruikers are the issue, how about simply requiring SMSFs to be set up for six months before they can borrow? Hardly an onerous restriction for those running sensible retirement strategies.
This seems to me to be mainly a licensing problem &/or a lack of licensing enforcement. Too many unlicensed accountants seem to be straying well away from the SMSF exemption. The three year transition is too long. Everything is verbal . Maybe just a few notes scribbled on a piece of paper. Enforce the current law on unlicensed accountants who in some cases seem to be of the view that the SMSF exemption allows them to do much more than facilitate client requests & do the admin.Some real estate sales people are also effectively advising clients to set up a SMSF. ASIC should make it clear that an unlicensed accountant cannot be involved in any way with SMSF & gearing. It is not the fact that gearing is allowed in SMSF’s it is how it is used. In fact a lot more facts would be useful all round in regard to this matter.