The Australian Financial Complaints Authority (AFCA) has revealed the elements it examines in disputes regarding SMSF switching advice and has stressed these are the essential items financial planners should be aware of in these circumstances.
“There have got to be good reasons to recommend a switch. Don’t forget the insurance [considerations] as well and with SMSFs you [also] should consider the [member] balance,” AFCA ombudsman Shail Singh told attendees at the latest Financial Planning Association Sydney Chapter event.
“The Productivity Commission [says it should be] $500,000 and I think [the] ASIC (Australian Securities and Investments Commission) [recommended balance] is still $250,000, [but] we still take the view that it [should be] around $500,000 unless [the fund] is hard to understand. [In those cases] we need to have really clear reasons why the SMSF would be suitable.”
However, separate to these considerations, he noted the most important aspect AFCA assesses when looking at an SMSF switching dispute is whether the trustee has had the responsibilities involved with running a fund explained to them and if the people involved have understood and expressed a willingness to take on the relevant duties involved.
From a more conventional advice perspective, he said keeping comprehensive file notes was imperative in any discussions with clients, as well as properly determining the goals and objectives of the client.
“One of the themes we continually see is not understanding what the objectives and goals of the person were and how the advice sits with that,” he noted.
“Whether you call this best interest or appropriateness, that was always the case and that’s often lacking.
“[So monitor] has [the advice] achieved the [client’s] goals and objectives.”
During the presentation, he revealed the extent to which SMSF advice accounts for the total number of disputes AFCA receives.