MGD Wealth chief executive John Barton said the growth in popularity of SMSFs in the past few years has seen a lot of people who don’t need one, or want one for the wrong reasons, establishing an SMSF.
“The more that relatively unsophisticated [investors] end up in the SMSF space, the more likely we’re going to have people who don’t really understand their obligations as a trustee. Therefore politicians will feel like they’ve got to protect these people,” he said.
“Over time we’re probably going to end up with investment restrictions and that will end up limiting the options of trustees at the more sophisticated end unnecessarily.”
Mr Barton said the restrictions could involve restricting SMSF trustees from investing in more complex assets, which would likely only add to the complexity.
While Mr Barton supports consumer protections in certain areas such as fraud, he said he wasn’t convinced that if investment restrictions were to be implemented by the government that they would be in the interests of people who should be in SMSFs.
A better solution, he suggested, would be to better educate trustees to the point where they’re comfortable with their obligations or move them to another vehicle.
“Unless you really understand what being a trustee means by definition, you really shouldn’t be one,” said Mr Barton.
“People who go through the motions and sign off minutes at the end of every year but they haven’t actually held a meeting and they don’t actually know what they’re signing, I would argue shouldn’t actually be trustees in the first place.”
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While this is a valid argument put forward by Mr Barton, it is equally valid in relation to other family trusts and private companies. As it is professionals, including accountants, financial advisers & lawyers, who are making recommendations to our clients to use these structures, so our clients can obtain the best (legal) financial advantage, we have an obligation to ensure our clients are aware of what we are instructing them to do. We must accept some responsibility and liability if we fail in that role.
As an auditor of SMSFs, I regularly request trustees sign and return copies of my audit management letters where I have identified matters that they need to be aware of, knowing that such letters may simply be otherwise filed unread.