Year to date, the FOS has accepted 811 disputes into investments and advice, 89 of which relate to SMSFs.
“SMSF advice continues to be a main element in the disputes that we’ve accepted,” Dr June Smith, lead ombudsman, investments and advice at FOS told ifa ‘s sister publication SMSF Adviser.
The main issues sparking these disputes include inappropriateness of advice, failure to follow instructions and failure to act in accordance with the agreement with the client.
Further, misleading product or service information and general service quality issues – such as failure to implement advice in a timely way, failure to act diligently and failure to communicate effectively – are also ongoing problem areas.
Accountants who are new to the AFSL regime should take particular care to operate in the best interest of their clients, Dr Smith said, with that being a major feature of the disputes handled at FOS.
“It’s not about the most perfect advice or the best advice, but it is about making sure that the advice that you give to your client is reasonable, and also that you’ve put your client’s interest ahead of your own,” Dr Smith said.
“Ensure that you have disclosed and managed conflicts of interest, for example, and demonstrate that there is a benefit to your client if they accept that advice and move forward with it.
“We say to accountants in particular when they’re transitioning to the new licensing framework to make sure when they give advice to their clients that they can demonstrate in their file notes and their written advice to a client […] that there is a demonstrated benefit to their client in accepting the advice that is being given.”
A particularly common area of dispute with SMSF advice involves buying or transferring a property into an SMSF with a borrowing arrangement in place.
“That’s one area that we have seen quite commonly in our disputes this financial year and also in years past,” Dr Smith said.
Dr Smith reminded accountants who have clients interested in property investment or borrowing their SMSF that they are subject to strict licensing requirements.
I agree George. Geared property in SMSFs is absolutely the next Storm, only much, much, bigger.
I also believe that the number of disputes is low due to the fact that accountants are not licensed.
Generally, you have to take the accountant to court if you have a problem. Very few clients will do that, they generally just change accountants and hop on the merry go around again.
Johno yes no excuse for bad advice particularly if they are not licensed to do so….come in regulators!
My point was simply that with new regime (which is a step in right direction) accountants should get licensed through a licensee whose advice culture is one of focusing on the client and “real fair dinkum” compliance.
I do believe that property becoming a financial product is also imperative to protect consumers. It is obscene that for me to recommend $1,000 of shares or managed funds to a client I need to be licensed and subject to best interests etc but I can sell them a property as part of “financial strategy” for $500,000 and don’t.
Robert, licensing isn’t the issue, accountants lack of investment knowledge, general dislike of shares, preference for property and high incidence of pushing personal views onto clients without the experience or qualifications to back them up are the real issues. I could employ a staff member full time just to sort out unnecessary SMSF’s and get clients set up properly. Just last week I had a client who ‘didn’t like’ her money going down in the GFC so the accountant came to the rescue and cashed in her whole ‘balanced’ industry super fund and put it 100% in cash in a SMSF in Oct 2008 and it’s sat their ever since doing nothing other than losing a few grand each year to his fees! She nearly dies when I showed her the recovery in the market from then and how many hundreds of thousands she’s out of pocket as a result of her accountants unlicensed and unqualified advice at that time!
Completely agree with Robert & George.
There are so many issues with people being able to flog property within super for a huge commission… Its generally gearing into an illiquid asset, doesn’t get much riskier than that.
When people realize their properties have either lost value (because they paid too much in the first place) or have appreciated very little the complaints will start rolling in… That or interest rates rising.
I believe the issues in this area will get greater over time. Accountants need to make sure they have an appropriate licensing solution going forward to deal with the new environment. However from a consumer perspective the sooner property is made a “financial product” the better.
Those 89 SMSF complaints are the tip of an iceberg. When interest rates eventually rise there will be 8900 complaints (minimum) for inappropriate advice as most funds will not have enough cash flow to fund what has been put in place for them.
It will make the Storm collapse look like a storm in a teacup.
SMSF’s make up over a third of all assets held in super, yet account for less than 11% of the claims. Story seems like a beat up to me.