BDBNs dangerous territory for advisers

Financial advisers who are putting in place reversionary pension arrangements, particularly where they interact with binding death benefit nominations (BDBN), may be engaging in inappropriate legal work, a leading SMSF lawyer has claimed.

DBA Lawyers director Daniel Butler said at his firm’s latest strategy seminar that the practice of setting up a reversionary pension in these instances should not be handled by advisers, but needed to be considered by lawyers who could give priority to the BDBN and expressly state that it will override other arrangements.

“We are coming across a lot of deeds that are very badly designed,” Butler said, adding some of these deeds were coming from document providers that had not engaged any legal advice.

“The deeds indicate an adviser is setting up a BDBN and you think the nomination is handling the beneficiary matter, but under these deeds the BDBN is going to be upset by the reversionary nomination.”

Butler said, inversely, advisers who are setting up BDBNs and then later adding a pension with a reversionary nomination are undermining their initial work and upsetting the outcomes their clients were seeking.

He warned advisers to tread carefully when making these changes, pointing out they strayed into work outside their area of expertise.

“For advisers to make changes to reversionary nominations or BDBNs is a very dangerous practice because when you do set up a pension you are doing legal work and you may be upsetting the BDBN arrangements,” he said.

“This could mean a jail sentence for the adviser, a loss of professional indemnity insurance, and consequences for the client because you’ve not brought all the issues to account when you’re doing the BDBN or when you’re doing the reversionary nomination, so this is really highly dangerous territory.”

In cases where marital separation or divorce has occurred, he pointed out a reversionary nomination could mean benefits being paid out to former spouses instead of taking current marital status into account.

“The last thing a pensioner would want would be for their former spouse to get their pension,” he added.

He recommended deeds be drawn up by lawyers who give priority to the BDBN and expressly state that it will override a reversionary nomination, in order to achieve clarity.

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