ASIC has released two reports into the SMSF sector that paint a damning picture of the quality of advice provided to trustees.
Report 575: SMSFs: Improving the quality of advice and member experiences and Report 576: Member experiences with self-managed superannuation funds were hinted at by ASIC deputy chair Peter Kell during the royal commission hearings in April.
The reports are based on 250 SMSF client files that were randomly chosen from data provided by the ATO.
ASIC found that 91 per cent of the client files were non-compliant in some way.
In 10 per cent of the files reviewed, ASIC deemed that clients were “likely to suffer significant financial detriment as a result of follow [the] advice”.
In a further 19 per cent of files, the regulator found clients were at “increased risk” of suffering financial detriment.
Of particular concern to ASIC was the prevalence of ‘one-stop-shops’ that recommend clients set up SMSFs for the purpose of investing in property.
Responding to the release of the reports, the SMSF Association (SMSFA) shared ASIC’s concerns about what it called “pockets of poor advice provided to SMSF members”.
SMSFA also expressed concerns about inappropriate advice provided by property one-stop shops.
However, the association said the ASIC reports should be taken “in context”, noting that the report said 74 per cent of SMSF member are satisfied with their fund.
“SMSFA notes the high number of files that ASIC viewed as non-compliant did not indicate a risk of financial detriment but attracted the regulator’s scrutiny for not meeting record keeping and process requirements,” said the association in a statement.
“Similarly, ASIC’s definition of financial detriment to an SMSF member is subjective and is difficult to evaluate without the member’s view being known.”
However, ASIC made it clear it would be applying further scrutiny to the SMSF sector.
Based on its research, the regulator concluded that “many SMSF members do not properly understand the advantages and disadvantages associated with setting up and running an SMSF.”
In addition, a “large number of advice providers are currently not complying with the best interests duty and related obligations”, said the report.
“We will be requiring [licensees] to review and remediate clients who received non-compliant advice. As part of this work, licensees may be required to review and remediate a broader sample of SMSF advice than that reviewed as part of this project,” said the report.
The regulator said it will also take regulatory action “where appropriate”.
A few years back as a para-planner, wrote plenty of SOAs with similar – goal ‘you would like to establish a SMSF to purchase residential investment property’. I often wondered how many had that goal before they saw the broker for their home loan, who suggested an investment property through super, then referred to the financial planner, with both broker and planning businesses owned by the same guy, who was a property developer. And, guess who’s properties the clients goal was to buy!
Once again, ASIC releases a report and asserts that the problem rests with the financial advice industry. There is no acknowledgment that the large majority of the 600,000 SMSF’s were NOT set up via a financial planner but rather an accountant providing verbal advice and lawyers producing the trust deeds. A lot of property spruikers (including investment firms raising funds for large unlisted commercial property assets) target these existing 600,000 funds and get around BID/FOFA by ensuring that investment decisions are client directed.
The media reporting once gain targets financial planners and our associations remain silent. The CPA or CA’s would come out firing to protect their own members but not ours. If the FPA is not prepared to come out and counter some of these reports & clarify facts then this is proof that it has become a self serving association that benefits only the management and board. We are being killed by ASIC/ISA/Media again & again and there is no one countering these attacks.To the board of the FPA, start making some noises, start defending your members or resign now and let new new people run the organisation. #changetheFPAboard.
“our associations” you kid right ? seriously you kidder nah, they are NOT OURS
Yes, I know personally of many accountants who just got a waiver from their clients, that no advice, my choice etc…………….really gets my goat that ASIC always targets planners
That’s funny cause it’s about the same % of advisers who are not compliant when the best interest duties rule is run over their business and fees.
And you would know this how? There’s nothing non-compliant about my business. I suggest if you are in possession of hard evidence of wrongdoing that you take some action. After all, the behaviour we walk passed is the behaviour we condone. Otherwise, I suggest you crawl back under a rock and stay there as your constant chiming in with some same nonsense is getting very tiresome and is unlikely to give effect to any change that you may be seeking amongst your (captive) audience – assuming that you have a solution that is…..
Troll
I’m not a fan of SMSF’s but this does smack a little of report 413. 200 risk files targeted by ASIC against known churners and found to be industry false after proper research afterwards. Here we have 250 files but were they random or targeted?
Very massaged. No happy ending.
Interestingly and contrary to many opinions on this forum, as an adviser who has many ethnic clients (and property obsessed clients) who believe in bricks and mortar and have zero trust in the managed/retail space, our clients have never had any problems, have had great growth in their funds, and are happy campers with SMSF property.
Yes, their is commercial risk in property of course too, and some funds probably shouldn’t have been setup by some with smaller balances, but I question what the real motive of this story is.
Is it fund manager driven (ISA), just like ASIC & the Insurers told us churning was an issue to bring in LIF? Wake up planners & society, a lot of smoke and mirrors in these stories.
Off topic anon, but I’m doing PhD research into what you call ‘ethnic clients’ and their advisers in financial planning (what unique experiences you have and what issues does advising them raise for you in practice). Would love to chat if you or anyone else is interested? a.craft@westernsydney.edu.au
I think it comes down to whether or not you receive a fat commission to ‘facilitate’ the investment.
agree with your post. mortgages are not simple products anymore they are very complex and can have severe financial consequences for the vast majority of borrowers because:
1. in most households in Sydney and Melbourne up to 50% of their net income goes towards repaying the debt, 50% of Australia’s population lives in these two cities.
2. most loan terms are between 25 to 30 years
3. in most instances, many first home buyers are using parents owner occupied property as collateral to enter the property market
4. you can have a mortgage as a revolving line of credit, fixed or variable, or with a master limit to make up any combo
5. you can have a mortgage in usd, sgd, or hkd
6. mortgages are used to fund business start up, mergers or acquisitions or business expansion
it is fitting then in light of the above that we appropriately regulate the product LIKE the FINANCIAL PRODUCT IT IS
requirement to be a mortgage broker to sell complex loan products – cert iv in financial services which my cat – which is napping right now could pass
I actually saw your cat obtain it’s cert iv in mortgage broking while still asleep. Can verify.
This is an interesting space to watch. I am not a big fan of SMSF’s. I do agree that they have real merit for investing in commercial property and there are many benefits. But for MOST (nearly all) clients (of course depending of what type of clients you have) they are simply not needed. They may have been more cost effective vs platform once upon a time, but not anymore. We don’t have any SMSFs and although I’m qualified to provide advice on them, I don’t / wont. I think historically they have been oversold alot by accountants and advisers.
Agreed its not for everyone.
I wonder how many of these funds were established by accountants before the limited licensing regime kicked in?
Working in a public accounting firm it’s “Would you like Fries and a Trust Deed with that Tax Return Mr & Mrs Consumer. I have a Deed here, Oh & did I mention the word CONTROL…It will only take 5 minutes to set up today.” mmmm I wonder why this is the case.
Yep, it’s not much better in Private I can tell that! An accountant that refers to me is constantly badgering me to get his clients into an SMSF where I can. He’s not happy with me because I wind up more than I setup that’s for sure, but the clients love me for it.
Yep, what Reality said! Conflicted property Advice inside and outside super is going to cause big problems
ASIC looked at advice from those that are licensed only in this report (S206, Page 56). What about all the SMSFs being set up by non-licensed accountants for example?? What is ASIC doing there?? Silence is deafening……
ASIC would probably argue that they have no power to compel accountants to provide files for review. The FSRC certainly does though, so it will be interesting to see if Uncle Ken and Shock and Orr are interested in investigating those acting outside of the fence.
Interesting research by the Industry Funds,
Oops sorry mean ASIC…
SMSFs: the nexus of financial product rorters and the Aussie property dream!
“many SMSF members do not properly understand the advantages and disadvantages associated with setting up and running an SMSF.” Well Duhhh. The public dont understand the simplest of superannuation rules let alone SMSF. Thats why they outsource to professionals to run it for them so they can concentrate on other more important things. Like running their business. Not defending the property spruikes tho…
Did the ATO provided file include only SMSF advice that covered property and LRBAs to low balance funds?? The file can’t have been random in which case it would be difficult to conclude systemic issues across the industry. I wonder how many had advice to set up the fund courtesy of their accountant – still happens all the time.
Asleep on the wheel again ASIC!! You have known this for years, you did nothing about it. All the while you can find pages upon pages of threads on Whirlpool forums of people being taken advantage of and pressured into buying property in woop woop for hundreds of thousands above market value.
Well make property a bloody financial product and this all goes away. Those who put in an SOA ‘I will refer you to XXXX property services’ and then reap a 5 figure referral commission need to be locked up.
Let’s add to it that there’s something truly depressing about everyone getting let off the hook for this strategy except for the adviser. If it’s dodgy, let’s get the accountant, the developer, the agent, and the broker to all fall on their swords as well.
We’ve never done it ourselves, but it’s disgraceful that in the one shop stop model, everyone can walk away except for the adviser that probably gets paid the least.
Yeah, spot on Mattie.
Anyone complicit should be held accountable.
Worst kept secret, the property gravy train has enriched those advisers ( Accountants as well) who would be happy to sell and pocket the $$$ happy to pander to the Australian love of property and FOMO.
As usual ASIC is late to the party…. LOL
SMSF are way over used and sold, hey as an accountant they are great, annual RR tax and admin fees, and a nice kickback from the property developer HOOORAH