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Back to basics: avoiding common compliance breaches in your SMSF practice

By Alicia Pevely
30 October 2015 — 4 minute read

SMSF practitioners are still falling into basic compliance traps, and with ASIC keeping its eye firmly on the SMSF sector, practices may need to review their compliance procedures.

Given ASIC’s recent activity in the superannuation space, it is important for advisers who provide advice in relation to SMSFs to be aware of the breaches most common in the industry.

Common - and often basic - breaches include:

• Inappropriate assessment and discussion of the risks of switching to an SMSF from an industry or retail super fund;

• Inadequate assessment of the client’s best interests and meeting the duties in s961B of the Corporations Act;

• Lack of assessment of the time, costs and skill of the client and their ability to operate an SMSF;

• Inadequate disclosure in SOAs; and

• Misleading and deceptive advertising

One of ASIC’s recent focus points has been in relation to advertising in the SMSF space, with firms such as Omniwealth and Dixon Advisory Group facing penalties from ASIC. The advertising of your services, particularly in relation to the benefits of SMSFs, must be carefully considered.

Advisers must ensure they provide a balanced approach in their advertising. This means assessing the returns, benefits and risks of investing in an SMSF and giving these thought when developing your advertising. For instance, any comparisons in advertising, particularly where the comparison relates to the costs and performance of SMSFs compared to industry and retail super funds, should be carefully reviewed and include relevant qualifications. A disclaimer at the bottom of the ad will not ordinarily suffice. Advisers must ensure that those viewing the ad are aware of any qualifications to the comparison upon first view. A simple way of ensuring SMSF advertising is compliant is to have it reviewed prior to release by your external compliance consultant or legal counsel.

Breaches relating to the provision of advice to clients often relate to the discharge of the best interests duty, particularly in relation to conducting a reasonable investigation into the financial products that might achieve the goals of the client. The requirement to conduct a reasonable investigation is included in s961B(2)(e)(i) and is scalable. This means that less extensive enquiries are required where the advice is for a simple purpose. Where a client is looking to redirect their superannuation to an SMSF from their existing fund the adviser cannot simply conduct a reasonable investigation into the SMSF to determine whether it meets the needs of the client. The adviser must also conduct a reasonable investigation into the existing fund. Advisers need to ensure they obtain full details from the client in relation to all existing investments and conduct investigations into the existing investments to determine whether redirecting their superannuation to an SMSF would in fact achieve the goals of the client.

Obtaining a limited AFSL

Before applying for a limited AFSL, accountants should be very clear on the authorisations they require to operate their business. A significant issue for accountants looking to apply for the limited AFSL is the scope of services that can be provided under this type of licence and whether this is appropriate for the business model, both now and in the future. The limited AFSL is just that – limited.

Accountants will not have the ability to provide personal advice or apply for a financial product on behalf of their client under the limited AFSL. When considering their application, accountants should think about their business model and determine the type of services they want to provide to their existing clients and the opportunities to provide additional services in the future.

For example, the limited AFSL will allow accountants to establish an SMSF or acquire an interest in an SMSF, but they will not be able to provide that client with advice regarding the products the SMSF will invest in.


Accountants obtaining the limited AFSL need the ability to show RG146 compliance in order to satisfy ASIC’s knowledge requirements contained in RG105. Not only do applicants need to demonstrate RG146 compliance at the time of applying for the limited AFSL, ongoing training must be conducted to ensure their RG146 compliance remains up to date.

For a small accounting practice, the ability to conduct ongoing training (in addition to what is already completed to maintain their accounting certification) can be expensive and time consuming. RG146 compliance is a requirement for all staff of the practice who provide advice to retail clients and is a condition on the AFSL. Limited AFSL holders need to conduct training for their staff to ensure they maintain RG146 compliance and also need to keep detailed records of the training completed. Training must be relevant to the class of products on the AFSL and should deal with the provision of advice.

Compliance issues post-July 2016

When limited AFSL holders opt to provide financial product advice about a class of products, they are authorised to provide strategic advice on a particular class of products. Those without an AFSL cannot provide advice at all. For limited AFSL holders, this means that they can provide factual information and general advice only. This can be problematic as it prevents SMSF advisers from making recommendations about specific financial products and whether those particular financial products are suitable to the needs of a client.

One of the major compliance issues we see for limited AFSL holders is developing procedures which monitor the provision of advice across their practice to ensure no personal advice is provided. The information provided to clients in a face-to-face meeting and any written advice or correspondence must all fall within the limits of factual information and general advice. Limited AFSL holders need to develop robust compliance procedures around their provision of SMSF advice to ensure they do not provide advice outside the scope of their authorisation.

For those without a limited AFSL and who are not authorised under any AFSL, compliance measures will need to be established which ensure that no class of product advice or financial product advice is provided. Given the many years of the exemption applying to advice about the establishment of SMSFs there is a risk that accountants will continue to provide the same level of advice unlicensed.

The reality of the long transition period to phase out the accountant’s exemption and the low numbers of accountants becoming licensed makes this issue quite significant. If you haven’t considered your position after 1 July 2016 to advise on SMSFs, now is the time to start.

Alicia Pevely, financial services lawyer, Sophie Grace Compliance and Legal


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