financial advice

Question complex client requests

complex SMSF plans

Advisers should be asking clients to provide the context for complex arrangements involving SMSFs where they appear to be seeking a rubber stamp for their actions.

Financial advisers need to determine the context behind investment plans within an SMSF, particularly when they are complex and the client appears to be seeking validation for them, according to a technical and legal expert.

Kit Legal founder and head of legal Catherine Evans said clients seeking specific advice, particularly where an SMSF seems like the only suitable outcome, should be questioned as to how they came to that conclusion.

“The starting point [for an adviser] is to find out how this idea came about and trying to find out the broader context to make sure there is nothing else that we should be aware of rather than just taking on board exactly what someone is saying,” Evans said.

The comments were made as part of a BT Academy webinar earlier today in which BT Financial Group SMSF strategy national manager Neil Sparks presented a case study about a 50-year-old industry fund member with a $1 million balance and a family trust also holding $1 million who wants to establish an SMSF to invest in property.

Sparks said the property purchase of an off-the-plan apartment in the Gold Coast would be funded by a related-party limited recourse borrowing arrangement from the family trust and the purchase would include a car park on a separate title and the option of a furniture package or holiday with the purchase.

He added while there were a number of possible strategies that could be used in this situation, the first consideration was whether an adviser should refer the client to a specialist if they did not have sufficient SMSF expertise or take on the client and provide a statement of advice (SOA) because that is what the client was requesting.

“When someone comes in with such explicit instructions it kind of implies the only solution can be an SMSF, but that really doesn’t let the adviser off the hook in terms of best interest duty,” he said.

Evans added that despite a client seeking an expected outcome, advisers should speak out if they believe that outcome would not be suited to them.

“What happens if you don’t agree with what the client wants to do? You can create an SOA stating they should not do it, and the client may or may not proceed, but that would be your recommendation and if you don’t believe it’s right, then you shouldn’t be making any recommendation,” she said.

Sparks added that in these cases it would be better for an adviser to decline working with the client and to not produce an SOA along the lines the client is expecting.

“There was a banning order in 2018 and comments from ASIC basically said even if the client requests a specific course of action or product, the adviser’s job is to investigate and recommend, not to merely take the instruction of the client,” he said.

“So, it is very clear that ASIC does not view a client request as something that would let an adviser off the hook.”

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