ASIC outlines priorities for SMSF advice space

Last year, ASIC released Report 575: SMSFs: Improving the quality of advice, which unveiled the findings of a major review it undertook into SMSF advice.

The report found that in 10 per cent of the files reviewed, the client was likely to be significantly worse off in retirement due to the advice.

It also found that in 19 per cent of cases, clients were at an increased risk of financial detriment due to a lack of diversification.

Ms Metz also noted that in a further 62 per cent of files, the advice provided didn’t demonstrate compliance with the best interests duty and the related obligations.

“Now that doesn’t mean that clients were necessarily worse off for having received the advice; what it does mean, though, [is] that, in most cases, there were record-keeping problems with the file,” she said.

“Going forward, I think this is an area that we will look at again and I think that’s particularly the case in light of the Productivity Commission recommendation that we do have a look at [the quality of advice], and the royal commission recommendation that a review should be done to assess whether the quality of advice has improved. This would be a sector that we would look at in this regard.”

Ms Metz said that it is important that advisers keep comprehensive files on their clients.

“Your file needs to tell the whole story, why the client came to see you, what you discussed, what you advised and what the client did,” Ms Metz said.

“There are a number of benefits for you as an adviser in doing that. Firstly, you’ve got a complete record. Secondly, you can demonstrate to the regulator that you are meeting the best interests duty and the related obligations, and in the event of a client complaint, you are also in a position to tell your side of the story in explaining exactly what happened.”

Ms Metz said that ASIC will also be looking to action the Productivity Commission’s recommendation for prospective SMSF trustees to be issued with a red flags document outlining the key issues that need to be considered before setting up a fund.

“That’s a piece of work that we’re looking to action now. I think it’s a very sensible recommendation,” she said.

“The red flag indicators for a lot of people will be obvious indicators, but you should look at whether or not a client has a low super balance, whether a client is telling you that they want a simple super solution, [or] if they are saying that they just want to outsource absolutely everything. In those cases, an SMSF may not be the right vehicle.”

Advisers should also have a conversation with the client to check that they’re willing to spend time managing the SMSF.

“Also, be very conscious of the fact that everyone has different levels of financial literacy and if somebody is coming in and saying that they want an SMSF and you’re aware that they have a number of credit cards that they haven’t paid off, that’s not someone who’s not the right candidate for an SMSF,” she said.