Compliance, Regulation

Advisers have best financial interest duty role

SMSF best financial interest

The need for SMSF trustees to comply with best financial interest duties can be helped by advisers and accountants providing greater details of their service offerings.

The requirement for SMSF trustees to comply with best financial interest duties (BFID) will create challenges for advice and accounting practices to demonstrate the value they provide at a more granular level, an SMSF strategy expert has said.

BT SMSF strategy national manager Neil Sparks said the introduction of the BFID as part of the Your Super, Your Future legislation, and its extension to SMSFs, created a broad standard for trustees and for their professional advisers.

“Being an amendment to superannuation covenants, best financial interest duty applies to all SMSF trustees who will have to prove they complied with it at all times,” Sparks said during the SMSF Association Virtual Technical Summit 2021 today.

He said trustees would be required to show why they made investment decisions and incurred operating expenses, including where this was the result of advice.

“What will the expenses mean for integrated advice businesses where advice is given to run an SMSF and administration services are provided to the SMSF?” he said.

“The trustee will have to justify those expenses incurred on behalf of the other members and I wonder how those integrated advice and accounting businesses can demonstrate the value the client is receiving to help the trustee justify the expense they have signed off on.”

He said fee arrangements would also need to be broken down in some cases.

“For fee arrangements, from an advice perspective, the Financial Adviser Standards and Ethics Authority standards require that fees represent value. Advisers will need to justify that back to clients,” he said.

He also noted advisers could play a role in shaping how SMSF trustees approach direct and unlisted investments, such as property.

“When considering the investment activity and behaviour of SMSF trustees looking away from advised portfolios, where is the decision-making processes and governance behind the scenes that talks to the choice of that investment and its growth and income prospects?” he said.

“We need to look into the research into these decisions for SMSFs as it’s very easy to get that information for investments, but not so easy for physical or unlisted assets.”

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