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ASIC hot on the SMSF trail

By Michael Hallinan
March 18 2014
2 minute read

While increased regulation is often seen as a blow to the SMSF sector, there’s another side to the story.

ASIC’s recent consultation paper on SMSF disclosure has generated some reactions amongst advisers. ASIC proposes that SMSF advisers be required to provide additional disclosure when they recommend that a client establish an SMSF, contribute to an SMSF or transfer existing balances to an SMSF. The common theme of the additional disclosure is that the particular risks of SMSFs compared to super entities must be disclosed to SMSF investors.

While this may be seen as another regulatory blow, two points must be noted. First, additional disclosure is, in substance, probably already required under existing disclosure obligations. Second, better disclosure can be a means by which SMSF advisers can differentiate themselves.


ASIC was obligated to consider the quality of SMSF advice by the parliamentary inquiry into the collapse of Trio Capital Limited and its associated entities. The parliamentary inquiry found that many SMSF investors were unaware their investments in SMSFs were not protected against fraud or theft by the investor compensation system of the SIS Act. Additionally, the inquiry found that many SMSF investors who invested in entities and products of the Trio group were unaware of the risks associated with SMSFs.

The proposals of the consultation paper which, if implemented, would require advisers who give advice recommending the establishment of an SMSF, switching contributions to SMSFs or rolling over existing super balances to an SMSF to provide specific SMSF disclosure and give guidance on the costs of an SMSF.

The specific SMSF disclosure will include:

• the duties and obligations associated with operating an SMSF;

• the risks associated with operating an SMSF;

• the need to develop and implement an appropriate investment strategy for an SMSF; and

• the time commitment and skills required to operate an SMSF effectively

As to the guidance on costs, this will include the costs associated with establishing an SMSF, with operating an SMSF and with winding up an SMSF.

On the basis that the current proposals will be implemented in substantially the form in which they are set out in the consultation paper, how are SMSF advisers to comply?

One method of compliance would be the development of a standardised SMSF disclosure document which would be issued to potential SMSF clients either at the time of the recommendation or as part of the advice documentation. As the disclosure requirements relate to SMSFs in general, the SMSF disclosure document need not be tailored for a particular SMSF and will have an extended shelf life.

The standardised SMSF disclosure document will have to specifically address each of the disclosure issues identified in the consultation paper and have a general section on the typical costs of establishing, operating and winding up of an SMSF. Additionally, the standardised SMSF disclosure document could provide basic taxation information relating to SMSFs such as contributions, investment earnings and taxation of benefits.

An SMSF adviser may, by providing potential SMSF clients with one document, can satisfy both the disclosure obligations of the adviser and the information needs of the client at the one time and in a manner which can be readily implemented. The key issue will be the quality of the document and its readability by potential SMSF clients.

The focus of SMSF advisers should be on developing a satisfactory SMSF disclosure document which satisfies the requirements of the consultation paper, is attractive to the eye, easy to read and provides the necessary information in an intuitive sequence and in digestible portions.

SMSF advisers who spend their time and energy on criticising the consultation paper will be at a competitive disadvantage to those who accept that the proposals will be implemented and seek to turn compliance with the proposals into a marketing point of differentiation.

Even if the proposals are not implemented in the near future, such a disclosure document could still assist in qualifying potential SMSF clients so that those clients for whom SMSFs are not appropriate can be identified earlier rather than later.

Michael Hallinan, special counsel, superannuation, Townsends Business and Corporate Lawyers