BT flags potential FASEA code breaches with SMSF advice

For advisers providing SMSF advice, BT head of financial literacy and advocacy Bryan Ashenden said the guidance has some important implications for referral arrangements between advisers and accountants and referral fees involved with those arrangements, as well as the skills and knowledge an adviser needs to be able to provide SMSF advice.

In a BT webinar, Mr Ashenden gave an example of a client, Brad, who has been a client of an adviser, Karen, for many years.

“Over the years, Karen has provided Brad with advice and he has always been pleased with the outcomes and the relationship,” Mr Ashenden said.

“In the last month, Karen has begun referring a number of her clients to June, a local accountant to establish an SMSF. Karen hasn’t had a lot of experience with SMSFs, so [she] gets June to do the actual fund set-up while Karen provides the advice.”

Part of the advice, he explained, has consistently involved a recommendation for the SMSF to invest in an SMA that is managed by a company related to Karen’s AFSL. Unknown to Karen, the AFSL receives a margin of any investments to the SMA.

Mr Ashenden warned that this scenario may potentially lead to breaches across a few of the standards listed in the draft Code of Ethics Guide.

For example, standard 9 of the draft code, he said, stresses that all advice and products recommended to a client must be offered in good faith and with competence and be neither misleading nor deceptive.

“While this standard is relatively straightforward, it does highlight that value of competence. It also relates to standard 10 which is, do you have the appropriate skills and knowledge to give that advice?” he explained.

“If she’s only just started dabbling in the area of SMSFs, should she really be making recommendations?”

While Mr Ashenden explained that this doesn’t necessarily mean that if an adviser has always given advice in specific areas, they can never advise on something new, it is vital they have the right level of confidence to be able to provide the advice.

“Where there are certain specialisations or specialist areas of advice, then you need to think about whether it’s common within the industry to say that if you’re going to give that specialist advice [such as SMSF advice] then you should undertake additional training or obtain an additional qualification,” he explained.

“Do you actually have that? It’s about thinking about what is the right thing to do and how to fill any [knowledge] gap that might exist.”

This scenario, he explained, also issues around fees and payments, which is related to standard 7.

“Standard 7 is about remuneration. The client must give free, prior and informed consent to all benefits that you and your principal will receive in connection with acting for the client, including any fees for services that may be charged,” he said.

“If I’m referring services off to an accountant, am I getting a referral fee back for it?”

Issues could also arise in regard to standard 7 with the payment that’s going to the licensee, he said.

“Interestingly, if Karen was not aware of that, then has she done a proper investigation? Is she offering these products in good faith with confidence? Does she know exactly how they operate?” he questioned.

“Karen would need to do a bit more investigation in that regard.”