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ASIC swoops on dodgy BDBN practices

ASIC swoops on dodgy BDBN practices

widespread examples of improper and unethical practices
Miranda Brownlee
19 January 2018

ASIC has discovered widespread examples of improper and unethical practices in relation to death benefit nomination forms and has put the financial advice sector on notice.

In a public communication, the Australian Securities and Investments Commission (ASIC) said it is finding issues with advisers failing to correctly witness binding death nomination forms for superannuation benefits.

ASIC said it has become aware of a common practice among financial advisers of witnessing or having staff members witness client signatures on binding death nomination forms without being in the presence of the signatory. In other cases, forms have been backdated.

“Each of these practices fails to comply with the law and may lead to the nominations being invalid,” said ASIC.

Acting ASIC Chair Peter Kell said improper and unethical practices around binding death nomination forms can lead to very poor consumer outcomes.

“Advisers, licensees and their staff who engage in these practices should consider this a final warning. AFS licensees have ultimate responsibility for the conduct of their representatives and need to effectively monitor and supervise their representatives,” said Mr Kell.

“The proper execution of binding death nomination forms is important because this form directs the trustee of the superannuation fund to pay superannuation and insurance benefits in accordance with the account holder’s instructions. Improper witnessing of the form can make it invalid, resulting in the death nomination being rejected.”

Mr Kell said ASIC expects licensees to have effective systems in place for identifying, escalating and reporting breaches in a timely manner.

“Inadequate or late reporting could indicate to ASIC that the licensee has broader compliance and cultural issues and would be a red flag for closer scrutiny,” he warned.

DBA Lawyers director Daniel Butler said the issues identified by ASIC are “the tip of the iceberg” with the majority of BDNS deficient in some way.

“The vast majority of BDBNS are done by non-qualified people and on poor quality documents,” said Mr Butler.

Institute of Public Accountants senior tax adviser Tony Greco said a lot of these practices occur because the topic of estate planning is often avoided and left to the last minute when the unexpected happens.

“No one wants to talk about death, no one wants to talk about succession planning, and it’s an Australia-wide issue that we don’t want to talk about these things,” said Mr Greco.

“When the unexpected happens, then that’s [when] a lot of backdating happens, because they realise these things weren’t attended to and people are trying to make sure certain things happen in a certain way even though legally, without those binding nominations, you could have an adverse outcome.”

SMSF Adviser has reported on countless issues and disputes involving BDBNs in the past, including the recent dispute Cantor Management Services Pty Ltd v Booth 2017 in October last year, where the critical issue was whether the BDBN had been given to the trustee and was therefore valid.

Perry v Nicholson [2017] QSC 163 was another BDBN-related case last year and highlighted how critical change of trustee documentation is.

The risk of litigation for SMSF professionals arising from poorly constructed BDBNs has also been well-documented, with one industry lawyer warning practitioners that the number of cases involving incorrect wording or terms in BDBNs had grown “out of control”.

 

ASIC swoops on dodgy BDBN practices
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