The two major industry fund lobby groups have backed ASIC's push to increase the disclosure requirements for advisers delivering advice on SMSFs.
In a submission to Consultation Paper 216: Advice on SMSFs: Specific disclosure requirements and SMSF costs, Industry Super Australia (ISA) and the Australian Institute of Superannuation Trustees (AIST) have pointed to the “unacceptably high level of poor advice” being delivered to people considering the establishment of an SMSF.
“ISA and AIST support an enhanced regulatory regime that imposes an obligation on financial planners, accountants and others who 'provide a critical entry point on the establishment of SMSFs' [according to CP216],” said the submission.
Advisers must be required to discuss insurance issues with SMSF clients as laid out in ASIC Report 337, said the submission, including: the clients' existing coverage; the future need of insurance coverage; and the cost and options of maintaining or changing the level of coverage through an SMSF.
The consequences of health issues that may affect the ability to obtain insurance should also be discussed, as well as the advantages of maintaining a level of insurance via membership of an existing APRA-regulated fund and the impact of insurance costs on an SMSF's account balance, ISA and AIST both said.
In addition to insurance issues, the submission argued that advisers should be required to discuss the lack of access to the Superannuation Complaints Tribunal; a relationship breakdown between fund members; an illness or the death of a trustee; and a fund member no longer wishing to be a member of the fund or moving overseas.
The failure, sale or change in circumstance of a related entity that is closely associated with the SMSF should also be discussed, as well as the advantages and disadvantages of the different forms of SMSF structures, the submission said.
SMSF trustees should also be required to undergo regular education to prove they are a fit and proper person to run the fund.
When an SMSF is registered, each of the trustees should be required to formally acknowledge their duties and responsibilities, as well as the risks involved in running a self-managed fund, according to the submission.
“It is entirely appropriate that such an exercise take place as the cost of failed SMSFs is borne not only by the individual members, but also by the taxpayer who ultimately bears the cost of tax concessions provided to an SMSF and any additional age pension expenditure required in the event that the SMSF delivers sub-optimal results,” the submission concluded.
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