The proposed retirement income covenant could pose a problem for SMSFs with regard to the financial advice they will have to seek in order to satisfy their obligations under the policy, a sector specialist has said.
“[The retirement income covenant means] there’s going to be a need for advice. So [we have to determine] what role is advice going to play here,” Smarter SMSF chief executive Aaron Dunn noted while hosting a technical webinar today.
“In particular [what role will it play] with SMSFs, [which is] an industry with a very large cohort of unlicensed advisers who are seen as primary advisers to the majority of SMSF trustees.”
According to Dunn, this dilemma facing trustees is being further exacerbated by reforms such as the new Financial Adviser Standards and Ethics Authority education standards and other quality-of-advice measures being implemented.
“[So] we do have a real challenge here as an industry to see how trustees are going to comply with this retirement income covenant if they don’t necessarily have the opportunity to seek advice and obtain what may be necessary and relevant and appropriate to them at that particular point in time,” he noted.
Further, he pointed out the uncertainty over the role auditors will play in the process also has the potential to result in an adverse outcome for SMSF trustees.
“We know we’ve got a set of requirements an auditor needs to look at in the context of an investment strategy – that it exists, that [the fund] is operating in accordance with the strategies – [but] what role will they play in the context of the retirement income strategy?” he said.
“Quite clearly this [will be] an additional layer of compliance and complexity that will be added to the audit so how that is scoped out is going to be critically important to the way in which the industry continues to be regulated.”
The SMSF Association has previously called for a common-sense approach to the implementation of the retirement income covenant for the sector.
