The Australian Financial Complaints Authority (AFCA) has indicated SMSFs do not pose a regulatory problem themselves even though a significant number of the body’s Compensation Scheme of Last Resort (CSLR) and Business As Usual (BAU) grievances involve these types of retirement savings vehicles.
“The big thing that we’re seeing is both the CSLR complaints and BAU complaints is conflicted advice models and SMSFs. That is absolutely the main driver of our complaint volume,” AFCA senior ombudsman investment and advice Alexandra Sidoti revealed.
“We’re really observing in these situations [there is a] primary focus on trying to find clients for a product, a conflicted product, rather than the other way around where we really expect to see advisers trying to find suitable products for a particular client,” she explained.
In light of this situation she stressed the issue is one that extends beyond the operation of SMSFs in isolation.
“SMSFs themselves aren’t the problem. SMSFs as a superannuation vehicle are appropriate for a lot of consumers but we really expect that when SMSFs are recommended to clients it’s very much based on their individual circumstances and considers what that particular vehicle is going to provide for those people,” she told attendees of an AFCA member forum hosted today.
While ruling SMSFs out as the heart of the issue, Sidoti pointed out the complaints body has identified the real core of the issue.
“The problem we’re really seeing here is the intersection between the use of SMSFs to basically get people in superannuation funds invested in a conflicted product of the financial firm,” she explained.
“So what we’re seeing here is advice models where they recommend people establish an SMSF so that those superannuation monies become available for investment in their conflicted in house products,” she said.
“That’s the key issue that we see and often we’re not really seeing any consideration of client circumstances.”
