SMSF set-ups and property and lending strategies are increasingly becoming areas of dispute for financial advisers, according to the Financial Ombudsman Service’s annual review.
Of the 1,292 investment and advice disputes the Financial Ombudsman Service (FOS) accepted in 2016-17, about 12 per cent were related to SMSFs.
Almost half of these SMSF-related disputes involved complaints about the appropriateness of the advice the consumer received.
The majority of SMSF disputes are lodged against financial planners, which mirrors broader complaints data from FOS. Only four disputes about accountants were accepted last year, compared to 524 for financial planners. It’s important to note here that FOS only has jurisdiction over accountants who operate under an AFSL.
Emerging and problematic trends in relation to motives for setting up an SMSF could land planners and accountants alike in hot water, FOS’s Dr June Smith told ifa sister site SMSF Adviser.
Borrowing for property investment is increasingly driving SMSF set-up, which Dr Smith said is landing some clients with funds that are not appropriate for their capabilities or circumstances.
Further, networks and one-stop shop arrangements – for example where a real estate agent, finance broker and accountant work together – are in some instances compromising the best interests of the client by prioritising the sale of a property over the client’s retirement needs.
The event of an economic or property market downturn would compound the impact of poor investment decisions, particularly if the primary asset in the fund is property, and especially where repayments on a loan need to be honoured. Dr Smith said there has been instance of this in Western Australia, with the Perth market currently in a slump.
Advice related to rollovers from APRA-regulated superannuation funds to SMSFs is also a trouble spot for SMSF professionals who do not appropriately consider pre-existing insurance arrangements.
Dr Smith said FOS has seen a failure to properly disclose pre-existing medical conditions when applying for new policies, the cancellation of old policies prematurely and clients not being made aware of new policy waiting periods.
The FOS annual review also found that an increase in the number of general insurance disputes received in the 2016-17 financial year helped push the total disputes received for those 12 months to record highs.
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