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Insurance a grey area for SMSF rollovers

The ability to provide advice on existing risk insurance cover in regard to switching from an Australian Prudential Regulation Authority-regulated fund into an SMSF is a subject requiring greater clarity, according to a financial services technical expert.

“Under the new limited licence, a person holding that licence can recommend the establishment of a self-managed super fund. They can also look at the existing large super fund and make a recommendation around that,” Commonwealth Bank of Australia FirstTech executive manager Craig Day told CA National SMSF Conference 2014 attendees in Sydney last week.

“But the question then that comes up is what if there is an insurance policy in there because if I’m now going to make a recommendation around that large fund, does that involve me making a recommendation around a specific life insurance policy?”

Day said the situation currently was vague as to what practitioners with a limited licence could do in those situations.

“If it’s to be workable, I think the adviser holding a limited licence should be able to make that recommendation, but to me that is unclear,” he said.

“I want something more specific from ASIC (Australian Securities and Investments Commission) saying yes you can make a recommendation around the ‘from’ fund and that includes specific insurance in relation to that ‘from’ fund.”

He emphasised the licensing restriction was not the only factor advisers needed to take into account when faced with that set of circumstances.

“If you’re going to do that, you must have the skills and expertise under [the] best interest [duty] that will apply under the limited licence,” he warned.

“You must be able to satisfy yourself that you’ve got the skills and expertise required to provide that kind of advice.”

A number of accountants considering their licensing options under the new framework were seeking clarity on the topic, he said.

“They’re going for requirements above the minimum basis just to clarify this issue so there is no uncertainty,” he said.

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