Avoiding disputes with your SMSF clients

Like most financial services providers, accountants providing SMSF advice are dedicated to ensuring they do not end up in dispute with their clients, or have complaints lodged with an external dispute resolution scheme.

Are you applying or have applied for a limited Australian Financial Services Licence?

This article draws on FOS’s 20 years of experience providing independent dispute resolution in the financial services sector, and provides useful information about how to avoid some of the common traps and risks that cause disputes. It covers what makes quality advice, what can go wrong and what you need to have in place to resolve complaints.

It’s all about quality advice

Our experience shows that you need to put your client’s interests at the centre of your service provision, as well as understand your client’s individual circumstances. We recommend that you:

Know yourself – Understand your business and licencing structure. Understand the boundaries in which you can legally provide advice and your competencies. Consider whether your client should be referred to someone else for specialist advice. Clearly define and scope the terms of engagement with your client.

Know your client – Investigate your client’s circumstances and make reasonable inquiries, understand their objectives, then set prioritised, specific and measurable goals and sort out any conflicts between goals and risk tolerances.

Know your product and strategy – Understand strategy and products that you will be advising on, including SMSFs. You will need to explain it in words your clients can understand. Explain the downside of the advice (costs, responsibilities, time commitment) as well as the upside. Link your SMSF recommendations with strategy and goals and have sufficient knowledge of alternatives, so that you know when and where to refer your client.

Effectively engage and communicate – It is a two-way process and you need to communicate in language your client can understand. The objective is to place your client in an informed position to make decisions. Record outcomes of your discussions; ensure your client understands the strategy, product, risk tolerances and capacity. Test that your client has understood your recommendations.

What are some of the most common traps that FOS sees with SMSFs?

Here are some of the traps we have seen professionals fall into when advising a client on SMSFs:

• The costs of administrating an SMSF is unrealistic for the amount of funds available

• The client is not capable of understanding and undertaking the responsibilities as a trustee

• There is no separate investment strategy for SMSF

• There is no real benefit for the client to switch from existing superannuation arrangements to an SMSF

• Gearing in the SMSF has no obvious benefit

• No alternative strategies considered

• No record of how conflicts have been resolved (goals, lifestyle, available resources, and willingness to take risk)

• Implications with insurance coverage within existing superannuation arrangements have not been considered

What should I do if things go wrong?

If things go wrong and your client wants to make a complaint, ensure as a licensee that you have good internal dispute resolution processes and systems. Can you say 'yes' to the following? If not, you will need to consider whether you have appropriate arrangements for dealing with client complaints.

• Are your complaints process and procedures accessible to your clients?

• Do you have clear response times for dealing with complaints?

• Will your complaints be handled in an unbiased way with adequate opportunity for clients to state their case?

• Is your complaints process free of charge?

• Is your client’s personally identifiable information kept confidential and not disclosed?

• Are your communications easy to understand and are you open to feedback?

• Do you keep a good record of your complaints and your responses?

• Do you use the information you have learnt from your complaints to improve the way you do things?

• Do your internal dispute resolution processes and procedures cover the majority of your complaints?

• Have you adopted the definition of complaint in the Australian Standards for complaints handling?

What ethical standards should you apply when providing advice to clients?

Exercise professional judgement, build the right culture within your business and reduce the risks associated with SMSF advice:

• Remember to put your client first

• Keep promises – do what you say you will

• Act with integrity – mistakes happen, identify, fix, remediate and learn

• Act diligently – provide timely and responsive communication

• Act within your competence – know yourself, your business and your service delivery, and say 'no' when appropriate.

• Act objectively – don’t be tempted by a 'win/win'

• Be fair – in service delivery and dispute handling

• Professionalism – act with dignity and have respectful dealings and cooperation.

Dr June Smith, lead ombudsman investments and advice, Financial Ombudsman Service Australia