Treating binding death benefit nominations (BDBN) as a mere formality when commencing a superannuation account can lead to financial services licensees cutting corners, but this is not an endemic issue in the industry, according to a legal expert.
Townsends Business and Corporate Lawyers principal Peter Townsend said BDBNs should be part of the client’s estate planning and tailored to meet the client’s estate plan.
His comments came after ASIC released a warning to financial services licensees against “cutting corners” on BDBNs, after finding advisers were failing to properly witness BDBN forms for superannuation benefits.
Townsend said while he had not encountered these issues, treating BDBNs seriously as a component of estate planning would be an effective way to comply with BDBN requirements.
“From time to time a busy planner might decide that he might have pressures of time to put in place investment strategies or something or the client comes in and signs documents and they’ve forgotten to have the thing witnessed properly and he doesn’t want to have them back in again,” he told selfmanagedsuper.
“I think it would be naïve to think that from time to time people don’t cut corners in this way. I wouldn’t have said that it was endemic in the industry, I have to say.”
He warned that while advisers might not face consequences for cutting corners on compliance immediately, it will eventually come home to roost, especially during an audit of the fund or file or during file reviews in cases where a client dies.
“You do the wrong thing on a compliance document and the front door of the office doesn’t suddenly crash open with a SWAT team running in with guns and dogs to catch you,” he said.
One option is for an accountant to create a short-term BDBN for members when they open a superannuation account, after which the SMSF member or trustee could engage a financial planner or solicitor to create an estate plan for them.
The financial planner or solicitor must ensure the estate plan dovetails with the BDBN and the will and avoid creating the three in an inconsistent manner as failure to do so could lead to other issues, especially when a member dies, Townsend warned.