91% of SMSF advice non-compliant: ASIC

91% of SMSF advice non-compliant: ASIC

Yes

The SMSF advice sector is rife with poor record keeping, process failures and recommendations that could place clients in “significant financial detriment”, says ASIC in a report first flagged in April.

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".

91% of SMSF advice non-compliant: ASIC
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