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Administration, Financial Planning

Debate sparked over adequacy of single SOA

SMSF statement of advice

A debate has begun around whether one statement of advice is enough for SMSF clients to adequately disclose the risks within this type of super structure.

The ability for a single statement of advice (SOA) to satisfy the disclosure of significant risks to SMSF clients is currently being disputed in the financial advisory community, a senior technical services executive has said.

“There is an ongoing debate about whether you need two SOAs or whether you need one [with regard to the disclosure of significant risks],” SuperConcepts technical services and education general manager Peter Burgess told delegates at the SMSF Professionals Day 2019, co-hosted by selfmanagedsuper and SuperConcepts, in Sydney last week.

“Some dealer groups require advisers to issue two SOAs – one for the trustees and one for the members, who might be the same individuals but just wearing different hats.

“Most of the legal fraternity will tell you, strictly speaking, you will need to issue two, but a lot of dealer groups don’t do that.”

The debate has come about in response to the Australian Securities and Investments Commission’s information sheet, INFO 205, which delivers guidance on what advisers need to disclose to SMSF clients.

The fact sheet covers subjects such as relevant conduct and disclosure obligations, the risks that should be considered by advisers when providing personal advice about SMSFs and the additional information that must be included in an SOA.

With regard to items requiring inclusion in an SOA, Burgess highlighted four key elements and the circumstances that dictate their inclusion.

Firstly, informing clients about the lack of statutory compensation is a must, he said.

Secondly, the impact on insurance should also be disclosed if insurance is needed or already in place, he noted.

Thirdly, he recommended advisers inform clients about access to complaints mechanisms, particularly if the structure of the SMSF is unusual.

Finally, clients should be made aware of the appropriateness of the different SMSF structures with reference to employing individual trustees versus a corporate trustee, he said.

Further, he suggested the inclusion of all of these items in an SOA can be performed by incorporating and referring to ATO material.

“If you are going to need to do two SOAs, then the first three items will need to be disclosed in the members’ SOA, while the last item is something that probably belongs in the trustee SOA,” he pointed out.

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