SMSF advisers concerned about meeting best interest standards set by the Financial Adviser Standards and Ethics Authority (FASEA) can ensure they are compliant by asking specific questions related to costs and intentions, according to a compliance expert.
Alexis Compliance and Risk Solutions principal Christina Kalantzis said while meeting the best interests provisions of the FASEA standards can seem like a subjective test, there were a number of tools already available to help advisers create and review statements of advice (SOA) that meet the standard.
“There are obligations that ASIC has provided guidance on in terms of Information Paper 205, which is about cost disclosure, and Information Paper 206, which is about risk disclosures,” Kalantzis said during a presentation today at the virtual SMSF Association National Conference 2021.
She said using these papers advisers should be able to ask a series of questions to ensure they are satisfying best interest duties along with the other Corporations Act requirements.
“In terms of disclosure of costs, does the SOA accurately reflect all fees and charges associated with an SMSF?
“Have you actually disclosed the costs of the establishment, the administration costs, the investment management fees, the annual compliance costs and the wind-up cost?
“If you haven’t, start doing it. You should be looking at the Rice Warner report that was released last year.
“Look at their estimates of what they say the costs are. This will give you an idea in terms of the FASEA fairness rule.”
She said advisers should also include a disclosure around the specific risks associated with running and managing an SMSF.
“Have you put in or have you discussed the risks of time, skills and penalties for noncompliance?” she said, adding investment strategies, the impact of insurance, access to complaint mechanisms and the appropriateness of an SMSF and its winding up should also be disclosed.
In terms of the ongoing suitability of an SMSF for a client, advisers need to be certain the client’s circumstances are still consistent with the initial advice to set up the fund and if it was worth maintaining if the balance had dropped too low in pension phase, she said.
Additionally, if a fund was set up with a balance below $500,000, was the client still expected to be in a better position, she said, adding, “I want to see that in your file notes and in the SOA”.
“These are some of the considerations you need to articulate as evidence in writing and also put in your file notes,” she said.
“When it comes to the FASEA and being compliant, I want you to do this high-level review where we look at fairness, value, conflicts, the behaviours of the adviser and the behaviour of the way that you give advice.”
