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Former ASIC investigator points to SMSF ‘red flags’

Katarina Taurian
23 October 2014 — 2 minute read

A former ASIC investigator has flagged potential long-term concerns facing the SMSF sector and offered suggestions for SMSF practitioners looking to avoid compliance issues.

Compliance One principal David Carson, who worked at ASIC from 2003 to 2012, told SMSF Adviser one of the sector’s biggest “red flags” is practitioners not understanding the full implications of what an SMSF is, and what educational requirements people need to advise in the sector.

One of the more common issues relates to understanding the difference between a credit adviser giving credit assistance in structuring the borrowings around SMSFs and talking specifically about using the SMSF as a financial product, Mr Carson said.



“Whether it’s credit advisers or financial planners, there are people who are keen to be able to advise in that space because obviously SMSF balances represent a large sum of money, so it gives people a good opportunity to be creative with investment opportunities using SMSF money,” Mr Carson said.

“But they need to first understand exactly what an SMSF is in terms of what its legal structure is and what they can and can’t do in relation to giving advice on it.”

Mr Carson also questioned whether those pursuing SMSF borrowing strategies “truly understand” what they’re doing.

He believes SMSF lending will always remain high on the regulator’s agenda, with ASIC set on ensuring that practitioners giving advice related to SMSF lending are adequately qualified and appropriately trained.

“It’s a massive regulatory hot button, it’s an area which is fraught with potential problems and some of them aren’t going to manifest for many, many years,” he said.

Mr Carson explained that because superannuation is a long-term investment, investors may be less inclined to make “careful” decisions when it comes to SMSF borrowing.

He said the decisions investors are making may not be necessarily as well informed as they would be if investors were expecting to access the funds in the short to medium term.

“That real long-term timeframe can sometimes cloud people’s investment choices,” Mr Carson said.

“Because it’s such a long-term performance issue, people can make a lot of statements and promises about the expectations of property over a long period of time, and you don’t actually get the chance to test that for many years.

“I think you’ve got a case of a very willing group of investors and a hungry group of advisers and that’s always a dangerous mix when they meet,” he added.

In terms of maintaining sound compliance practices, Mr Carson said SMSF practitioners should ensure there is documented evidence that the client is leading the decision-making.

“I don’t mean that they should be all hands off and let the customer do all the decision making,” he said.

“Just [keep] very good records that demonstrate that you’ve got full engagement from the customer and it’s not the adviser driving the transaction or the investment relationship.”

Former ASIC investigator points to SMSF ‘red flags’
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