In your experience, what are SMSF practitioners struggling with at the moment?
We’ve been looking a lot more at the accountants' licensing than we have at SMSFs in particular. The one thing we have seen is this issue with limited recourse borrowing arrangements where a lot of the banks are asking SMSF practitioners to sign a certificate, to provide a certificate that they have given the client about the suitability of the borrowing arrangement, and a lot of the time that advice is credited advice which they’re not authorised to give, if they don’t hold a credit licence.
A lot of the time it’s the bank seeking to transfer liability over to the financial planner, for the suitability of the loan, so we have seen quite a few of those. I’m not saying it’s the biggest thing in the industry but it’s the one we’ve seen the most of I guess.
We feel quite strongly about the inappropriateness of signing those limited recourse borrowing certificates.
The issue is that often the [advisers] are being asked to certify that they’ve advised the client about the terms of the loan, the impact or its effects, whether its suitable for them and their ability to meet repayments. Those are actually things which are credit assistance, so unless they’ve got a credit ACL licence or authorisation, it would be an offence to provide that advice.
What we are recommending is that when advisers are asked to provide a certificate they make sure they read it really carefully and understand what they’re being asked to certify, and don’t certify that they have provided advice that they’re not authorised or qualified to provide, and in particular that they don’t certify the suitability of a loan or the affordability because that’s the lender’s job; we suggest they strike through any sections other than those that contain factual information that they can certify.
Is this something that’s been happening recently and why is it a risk?
Well, it’s been happening for years to be honest but because there’s so much limited recourse borrowing going on in SMSFs it’s something that has become a more prominent problem.
It’s a breach of the credit legislation not the AFS legislation, it’s also a massive risk for the adviser because they’re probably not insured to provide credit advice as well, it wouldn’t be covered by their PI.
You recently flagged perceived loss of independence as an issue for accountants looking to become licensed to give SMSF advice – what do you mean by that?
What that really means is when you’ve got your own licence you can set your own policies around how you want to service your clients, what services you want to offer, the way in which you offer those services.
But when you’re an authorised rep of a licensee, because they’re responsible for everything that you do, their way of managing that is to set out policies and procedures for the way they require things to be done. And if you don’t comply with those procedures, if you don’t want to, you either have to negotiate with them to change their procedures so far as they relate to you, or you risk them finding that you’re not compliant with their procedures, and their procedures may not suit the way you want to do business, you may have a different way you want to do it. This is still ok, but what we find with licensees is they like things to be relatively standardised because it’s easier for them to actually manage them.
What do SMSF practitioners need to be most way of in the coming months?
The appropriateness of the investment advice they give and making sure that the trustees of the SMSF are aware of their obligations and are managing them appropriately, and also only recommending SMSFs where it’s appropriate.
ASIC is very concerned about the proliferation of SMSFs and they’re very concerned in particular that people who don’t really understand or have the capability to manage them on an ongoing basis, are being recommended to use them.