The document provider an adviser chooses for an SMSF client could have serious consequences from a best interest duty and an ethical standpoint if cost is the main determining criteria, a specialist lawyer has said.
DBA Lawyers director Daniel Butler said many advisers are selecting a document provider for their SMSF clients purely based on cost, but that can lead to situations where the documents issued are prepared by individuals who are not by law qualified to do so.
Butler added advisers may be unaware this practice could seriously hamper their ability to fulfil the obligations set by the new Financial Adviser Standards and Ethics Authority Code of Ethics.
“An ethical standard primarily means you must comply with the law,” he told selfmanagedsuper.
“If you prepare a legal document when not qualified to do so, that is a breach of the relevant Legal Profession Practice Act in most states and territories and in Victoria for instance you could go to jail for two years.
“It’s a serious thing.”
According to Butler, using cost as the deciding factor in choosing an SMSF document provider is flawed and he highlighted advice relating to risk cover to illustrate this point.
“That’s very classic with insurance. These days with insurance, with TPD (total and permanent disability), a client has to decide if they want to cover any occupation, own occupation or activity of daily living. Or do they want the cheapest?” he said.
He noted in most cases the client would choose the cover that was the best for them provided by an insurer that is highly considerate with its claims handling, making the issue of cost fairly insignificant when looking at the client’s best interest.
“In this instance the adviser would have looked at the objective and the financial needs of the client that were disclosed by the client. The adviser has identified the subject matter of the advice that has been sought by the client,” he said.
As such, he said choosing a document provider on the basis of cost could be problematic for advisers on both ethical grounds and the best interest obligation.
