The corporate watchdog has revealed to the banking royal commission that nine out of 10 pieces of advice relating to the establishment of SMSFs fail to comply with the best interest duty and regulated obligations in the Corporations Act.
“It is obviously very disappointing to say the least,” ASIC deputy chairman Peter Kell said of the figure, which comes from a yet-to-be-published survey of advice the regulator has carried out across a wide range of licensees and advice firms in relation to SMSFs.
Kell said there were instances of advice to establish an SMSF in circumstances where a client may have, for example, a lower balance or may not comprehend the obligations that come with being an SMSF trustee.
He flagged concerns to the royal commission about advice, particularly in the SMSF area, where people were being encouraged to undertake borrowing to invest in real property, and he cited a case study that will be documented in an upcoming report.
“We saw an example where a client obtained advice to establish an SMSF in order to invest in a property in Queensland. It was a townhouse worth $400,000,” he said.
“The consumer found that the costs of managing the property, the costs of administration of the SMSF were much greater than he had been led to believe, that he had anticipated. So he’s presently trying to, if you like, unwind the situation, to sell the townhouse, which is not going to be possible for the price – for the purchase price, around $22,000 less, and overall the loss to him is in the order of $70,000.”
When asked by counsel assisting the royal commission Rowena Orr QC what had happened, if anything, to the adviser who provided that advice, Kell responded ASIC was still deliberating appropriate action against advisers who provided inappropriate advice in relation to ASIC’s recent SMSF project.
He noted the majority of those files did not necessarily immediately indicate consumer detriment, adding ASIC has identified a smaller percentage where it thought consumer detriment is apparent.
“But what we have found across large and small licensees in our reviews of recent times is that the industry as a whole is struggling to get to grips with how best to implement the key best interest duty requirements, including how they are documented in advice files,” he said.
