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Preventing an SMSF sector catastrophe

By Dante De Gori
18 February 2014 — 2 minute read

The financial services industry has a responsibility to prevent SMSFs being the next failure within the financial services sector.

SMSFs have become a popular strategy and value proposition for many accountants and financial advisers, however it is important to question those who are providing SMSFs as an investment solution and investigate whether SMSFs are the best option for consumers in every situation.

Cause for concern

Advertisements by unlicensed providers are targeting not only unsuspecting Australian consumers but also financial advisers and accountants. These advertisements look to entice practitioners and trustees with large commissions, arguably offering them an avenue to a remuneration structure that is familiar and safe.

The financial services industry, and the financial planning profession has a responsibility to prevent SMSFs being the next failure within the financial services sector.

One could argue we have had a string of close calls that are leading to this eventuality - think of the collapse of Trio and the subsequent inquiry by the Parliamentary Joint Committee.


We know ASIC is concerned with the advice and suitability on SMSFs with the release of consultation paper CP216 and we are aware of the loop hole in the legislation with the existing accountants exemption that provides a significant consumer protection gap – this will not be corrected until July 2016.

In the release of CP216 Peter Kell said “ASIC does not want to see an influx of trustees who are ill-equipped to cope with the responsibilities and obligations of running a SMSF.”

It may already be too late. SMSFs are the fastest growing segment within the superannuation sector with over 900,000 SMSF members/trustees.

However do we know how many of those members truly understand that they are responsible for managing the fund according to the laws and rules that apply to SMSFs?

We must ensure that SMSF trustees are equipped with the appropriate advice and the knowledge they need to truly self-manage their superannuation.

Financial advice

As a profession we must think carefully before recommending the SMSF option to a client. Moreover, under the new FOFA obligations SMSF advice will be scrutinised more than ever before, especially under the best interests duty obligations.

ASIC states that some motivations for establishing a SMSF include the advice and influence of a third party, such as an accountant or financial adviser.

ASIC considers ‘gatekeepers’ such as financial advisers and accountants to be a critical entry point on the establishment of SMSFs. These gatekeepers are critical to the protection of consumers and they extend beyond the financial adviser, to include unlicensed providers, administrators, auditors, licensees, regulators and arguably the government itself.

Professional standards

It is evident that not all financial advisers and accountants are qualified to provide advice on SMSFs. More alarming however is the ability of many unlicensed providers to influence Australians to invest in a particular asset and use a SMSF to do so without regard to the individuals’ financial objectives.

Professional standards require that before a financial planner recommends a financial product, including that of an SMSF, that they confirm appropriateness, suitability and to have formulated a strategy on which their advice is based. Professionals must act in the best interest of their client over all others.

Certain unlicensed providers do not have this obligation of care; their primary concern is to sell a product. Though they may not be technically providing personal advice, unlicensed providers do influence the decision of Australian investors yet they are not obligated to act in the client’s individual best interest.

For many Australians, SMSFs are an ideal vehicle for their super savings, providing greater control and lower fees. And most of the 900,000 SMSF trustees and members receive qualified advice and recommendations and are well-equipped to self-manage their superannuation.

However, we must ensure that this is the case across the SMSF sector – that consumers are not pushed towards a solution that does not suit their needs or goals by parties who do not have an obligation to do right by the client.

Dante De Gori, general manger policy and conduct, Financial Planning Association.


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