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In a recent discussion on the FASEA Code of Ethics and SMSF advice, IOOF senior technical & regulatory change manager Troy Smith said while the Code itself doesn’t specifically mention SMSFs, FASEA has made references to SMSF advice in some of the examples in guidance it has released on the Code.
One of the examples is where an adviser is working in a financial planning business and there’s an accounting business attached to that same branch, Mr Smith explained. The adviser in this example has provided a recommendation for an SMSF and the accountancy arm of the business is going to run the fund.
“What FASEA say in that circumstance is that there’s a bunch of additional conditions that the adviser needs to meet. The recommendation of course needs to be in the best interests of the client, but the accountancy arm also needs to be able to provide the service at market rates,” he explained in a keynote session at the SMSF Adviser Technical Strategy Masterclass.
“While there can be a referral to the accountancy arm, there can’t be any payment for that referral, but the adviser is able to share in the overall profits generated for the firm.”
Advisers in these sorts of circumstances who are providing a recommendation to set up an SMSF should have a look at the additional guidance put out by FASEA and run through the conditions to ensure they comply with the Code, he said.
The Code of Ethics has a whole range of touchpoints that are relevant to SMSF advice, he said, including standard 2 which is about ensuring that the advice or recommendation is in the best interests of the individual.
“Standard five requires an adviser to explain the costs, the benefits and the risks of the advice and that the adviser is reasonably satisfied that the client understands those components,” he added.
“When you think about it, establishing an SMSF in that circumstance requires the adviser to get the client over an enormous amount of work. So, when you’re looking at the Code of Ethics and you’re putting a recommendation in place, you need to look at those different elements.”
Standard 7 also needs to be complied with, he said, which states that the costs and fees paid by the client must be fair and reasonable and represent value for money.
“You also need to ensure that standard nine is met which states that the product recommendation fits the client’s needs and objectives,” he noted.
“Make sure that you’re also competent in providing the advice in line with standard 10 and that you have the knowledge and skills to be able to provide that advice.”
Troy Smith presented at the SMSF Adviser Technical Strategy Masterclass, held in partnership with Lonsdale Financial Group.
Lonsdale has been working with financial planners and accounting practices for over 30 years and is focused on growing wealth management and integrated advice businesses. It provides authorised representatives with practice management support, business coaching, access to technical support and other advice templates and tools.
