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Inertia should not drive SMSF decisions

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Advisers need to ignore their own biases and inertia when providing SMSF advice to ensure the latter are getting the best outcomes from their funds.

SMSF advice practitioners should not let inertia become involved in decisions as to whether trustees should continue to run their fund, but, under best interest guidelines, check if it is still fit for purpose each year, a specialist SMSF adviser has said.

BDO Australia senior consultant Peter Crump said while SMSF trustees may be reluctant to make changes to arrangements they already have in place, advice providers also had to overcome their own biases when considering an SMSF’s future.

“Part of the role of the good adviser is to identify when the trustees are potential victims of inertia and then to identify what type of conversation they require to exert some force to ensure that the trustees are aware of the change in that state,” Crump said during a presentation at the recent SMSF Association National Conference 2021.

He said these areas of inertia were often related to whether an SMSF was still a suitable vehicle for the trustees and members of the fund and that may be dependent on a change in circumstances, the costs of running the fund, the willingness and capacity of the trustees to run the fund and perceived hurdles, such as tax, when winding down a fund.

“What was the conversation we may have had at the establishment of the SMSF in case this particular set of circumstances arose, and what is the ongoing conversation that we, as advice providers, need to be having with SMSF trustees to flush out these issues about whether what they have today is right for them?” he said.

He said SMSF advisers were unable to avoid asking these questions of SMSF trustees, even where they may raise difficult questions within a family context, as new standards forced them to consider these issues.

“Licensed advisers have a lot of issues bearing down on them at the moment from the Australian Securities and Investments Commission (ASIC), from the Financial Adviser Standards and Ethics Authority (FASEA), from the ATO, and the whole environment within which we provide advice to our clients is evolving and it’s a consumer-led change in terms of the advice,” he said.

“We as the advice providers are going to be held accountable to the standards that are set out,” he said, noting that FASEA standards emphasised the ongoing best interests of members.

“It means we can’t sit in that bubble of inertia and say the SMSF advice was appropriate at the start because we are required under the FASEA Code [of Ethics] as licensed advisers to assist the ongoing and prospective need for the superannuation fund.”

He said this extended to advising clients to wind up their SMSF if it was clear it was no longer fit for purpose or too expensive or difficult to maintain.

“As advisers we need to be very careful that we don’t allow our inbuilt biases to say, ‘well, let’s keep the SMSF because we think it’s better for you or it might be useful at some stage’,” he said.

“I don’t see the word ‘might’ being used anywhere in the ASIC or FASEA references. It’s about what will actually be the best action going forward.”

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