Advisers need to ensure decisions made about risk cover for SMSF members are well documented to avoid the possibility of litigation against them, according to an insurance specialist.
BT Financial Group life insurance product development senior manager Jeffrey Scott warned even if the SMSF member or trustee made the decision not to hold risk cover inside their fund, the process needed to be properly recorded.
“If that’s the case, then make sure it’s documented really, really well,” Scott told last week’s SMSF Association Sydney chapter breakfast.
“Because if you do not have an insurance strategy as part of the investment strategy, that is a breach [of the law]. Again, you do not need to have insurance inside your SMSF, but you must have the strategy.”
He noted if the SMSF did not have a strategy regarding risk cover for the fund’s members and the fund was audited, then under section 34 of the Superannuation Industry (Supervision) (SIS) Act there was a potential penalty for the breach of up to 100 penalty units for each trustee.
“At $180 per unit that is an $18,000 fine per trustee for not having the insurance strategy as part of the investment strategy,” he said.
“Now if you gave the advice to that trustee under section 55 of the SIS Act, there is the ability for that individual to come after you for their loss.
“So you have the responsibility if your trustees are dealing with you and you don’t at least raise the awareness to them of this and tell them of this situation, they can come after you for any loss they suffer.”