Self-Managed Super Funds…get the right advice

The Australian Securities and Investment Commission (ASIC) has released ASIC Report 575 detailing research into self-managed super funds (SMSFs) highlighting a number of areas where consumer expectations around SMSFs are inconsistent with the reality of running one.

The research found that 32% of SMSF members found setting up and running their SMSF to be more costly than expected while 38% found running their fund to be more time consuming than expected.

Additional findings that highlight the lack of understanding consumers have around their SMSFs and their corresponding legal obligations as SMSF trustees were:

  • 33% of SMSF members did not know that an SMSF must have an investment strategy;

  • 30% of SMSF members had no arrangements in place for their SMSF if something happened to them;

  • 29% of SMSF members thought they were entitled to compensation in the event of theft and fraud involving the SMSF; and

  • 19% of SMSF members did not consider their insurance needs when setting up an SMSF.

SMSFs can be an appropriate option for many Australians however, they are not for all and consumers can be caught out by the complexities of SMSFs.

Some adviser advice inadequate when it comes to SMSFs

An independent expert reviewed 250 client files as part of the research where an adviser had provided personal client advice to set up an SMSF and the client files reviewed were randomly selected by ASIC from data provided by the ATO.

Unfortunately, the results indicated that there were a number of instances where the advice provided resulted in the client being worse off in retirement (10%), at risk of significant financial detriment (19%) or, the advice provider did not demonstrate compliance with the best interest duty and related obligations (62%).

It should be noted that of the 62% of files deemed non-compliant there was no sufficient evidence that the client would be worse off financially; simply that the file did not sufficiently demonstrate the client would be in a better financial position as a result of the advice.

Considering the immense and growing popularity of SMSFs, ASIC saw the need for consumers to be fully aware of the risks and obligations involved with moving their superannuation into a self-managed super fund and wanted to highlight the important role that access to quality financial advice plays in guiding consumers to make the right decision.

Since the introduction of SMSFs in 1999 many consumers, motivated by a desire to gain control over their investments and financial futures have opted for SMSFs over retail superannuation products.

Today, there are more than 590,000 SMSFs holding assets worth nearly $697 billion with this figure representing 30 per cent of all funds held in superannuation.

Featured Posts

Recent Posts