Compliance, Investments, Regulation

Sharper record-keeping focus tipped

Advisers and accountants can expect increased scrutiny of the record-keeping for the advice they provide to SMSF clients over the next three years, a compliance expert has warned.

Alexis Compliance and Risk Solutions principal Christina Kalantzis said the Australian Securities and Investments Commission (ASIC) would turn its focus on record-keeping obligations following the release of “Report 575 SMSFs: Improving the quality of advice and member experiences” in June last year.

That report found out of 250 client files reviewed where personal advice to establish an SMSF was provided, 91 per cent did not comply with the Corporations Act ‘s best interests duty and related obligations.

The majority of these cases of non-compliant advice related to poor record-keeping and process failures, while in 10 per cent of the files reviewed the client was likely to be significantly worse off in retirement due to the advice provided.

Kalantzis said advisers and accountants will have to expend considerable time and energy to ensure robust record-keeping to meet best interests duty and compliance requirements.

“I think it’s very hard to have really good files. I think it takes a lot of time and it takes a great team to do that,” she said.

While she did not question the quality of advice provided to SMSF clients, she said statements of advice should provide granular detail of the rationale behind decisions, including investment decisions.

For example, if an adviser deems it in the best interests of the client to move them from cash to an alternative asset class, they must provide a paper trail that demonstrates why this is so.

This can include recording the cash rate in the file or reviewing the fixed-term deposit rate.

“That’s how much detail we’re going into now for file keeping. Don’t tell me you’ve considered alternatives if it’s not in the file. I want to see evidence of that,” Kalantzis said.

Alternatively, advisers should produce a separate record from their approved product list or investment committee that provides evidence they have analysed all available products before recommending them to clients, she said.

She also cited comments made by ASIC at the conference, which said advisers should produce evidence they have checked whether an SMSF is still appropriate for the client.

Advisers should discuss this with their clients, review their files and produce an SOA that provides evidence they have checked the suitability of an SMSF for their client, she noted.

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