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SMSF professionals at risk from investment strategy advice

Daniel Butler
Sarah Kendell
08 October 2019 — 2 minute read

SMSF professionals could put themselves at risk if they provide any type of advice around a trustee’s investment strategy without a licence, according to DBA Lawyers.

The SMSF specialist law firm’s director, Dan Butler, told SMSF Adviser that the ATO’s recent letter campaign to trustees that were highly invested in leveraged property had brought the issue of investment strategy development to the fore, but that it was important for auditors and accountants in particular to make clear to their clients that they could not advise them on strategy construction.

“If you don’t hold a licence, we would not encourage a non-licensed adviser to put [an investment strategy] template in front of their client. What they should do is say you need a licensed adviser to assist you on the strategy. We can give you a referral, but we are not licensed on this front,” Mr Butler said.

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“Some advisers would find this difficult, so the next stage is to say I will give you a template, but this is to use at your own risk. And the client should sign a letter of execution that the adviser has recommended they go to a licensed adviser to get the strategy done for them. The adviser can give them some resources that might help, but after that they are on their own.”

Mr Butler said while some SMSF advisers had no problem with providing templates for unlicensed advisers to use with their clients, recent successful civil cases against SMSF auditors illustrated the degree to which service providers could inadvertently leave themselves open to legal action if their trustee clients experienced investment losses.

“We think the danger is the vexatious litigant — clients can be friendly when things are going well, but when they want revenge, they can turn on you,” he said.

“The strategy itself may not be a financial product, but if the client comes back to you and says how do I fill this in, suddenly the adviser is dragged in deeper. 

“Courts are coming out and saying you can be accountable for this stuff; if you help a client write a strategy where the fund suffers a 50 per cent loss and the client claims that loss was a consequence of you providing a recommendation, you could be up for it.”

Mr Butler added that the fact that a strategy template had been produced by a third-party software provider and referred to the basic requirements of SIS regulation 4.09 did not mean the document would hold up under legal examination.

“People might get comfort from the fact that their software spits out the annual set of resolutions, but the question is, will that stack up? The software suppliers are trying to make life easier for people, but while it’s quick, it may not have been done properly,” he said.

“In a court of law, everything is a perfect world, and if you rely on technology, you do so at your own risk, because they expect you to do everything professionally.”

SMSF professionals at risk from investment strategy advice
daniel butler px 800 smsf
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