Financial Planning, Investments

Strategy advice doesn’t need SOA but care required

SMSF investment advice

SMSF practitioners can give advice on an investment strategy without a Statement of Advice, but may be held liable for losses stemming from that advice.

Investment strategy advice provided to an SMSF does not require a statement of advice (SOA), but any deficiencies in the strategy may open practitioners to legal action from members of the fund, an SMSF expert has warned.

Speaking as part of a webinar today, I Love SMSF chief executive Grant Abbott said trustees were required to have an investment strategy, which had to be a forward-looking document that was put in place each year.

Abbott said a strategy prepared retrospectively, particularly after the end of the financial year, was only an historical document of the underlying investments and objectives of what took place in the past income year and should not be considered as a strategy at all.

He highlighted trustees were not always reliable when it came to implementing their investment strategies and encouraged practitioners who are involved in the administration of an SMSF to also assist trustees create and implement their strategy.

“From a Corporations Act point of view, as an administrator or auditor, we can review and help clients make the investment strategy. Anyone with a limited licence, and because it is general information, you have full authority to create an investment strategy,” he said.

“Importantly, an investment strategy is not a financial product. It is only when you start to fill or complete that strategy with underlying investments, that’s when it goes to being a financial product.”

He said a strategy was not considered a financial product because it did not deal with a superannuation interest within an SMSF and the underlying strategy did not impact on a member’s benefit, that is, the taking of a pension.

“Pensions are financial products and commencing or ceasing a pension is a financial product, but the underlying strategy is not. This is important for some practitioners who are licensed, but in this instance there is no need to prepare an SOA for an investment strategy,” he added.

Abbott, however, warned that where an SMSF practitioner or adviser became involved with the strategy, they could be held liable for any failures associated with the strategy, including if it was backward looking or had no strategic guidelines.

“Section 55.3 of the SIS (Superannuation Industry (Supervision)) Act enables members of the fund to recover against the trustee and against anyone else involved in the strategy, and we see that with the auditor in the case of Cam & Bear, members can recover directly from auditors, administrators, accountants and planners, or anyone involved in process,” he said.

“My view then is either be in and help with investment strategy or you disclaim and make sure clients sign a disclaimer that you are not involved in investment strategy, rather than just having a notice to that effect.”

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