ASIC, Superannuation

ASIC guidance drops balance figures

ASIC SMSF guidance

New ASIC guidance for the provision of SMSF advice has dropped references to specific minimum balances, noting it was not the driving factor of suitability.

The Australian Securities and Investments Commission (ASIC) has updated its guidance regarding the provision of SMSF advice and removed specific references to a minimum balance required to establish a fund.

ASIC stated the updated guidance, contained in Information Sheet 274 (INFO 274) Tips for giving self-managed superannuation fund advice, made a number of changes, including highlighting the risks involved with an SMSF, the importance of seeking advice and ensuring any comparisons between SMSFs and Australian Prudential Regulation Authority (APRA)-regulated funds remained relevant and up to date.

Addressing the issue of minimum balances, the corporate regulator stated it had removed reference to them in the new guidance as “balance alone was not the driving indicator of suitability” and provided two case studies to illustrate this.

“Superannuation balance, whether high or low, while important, is only one factor when considering whether an SMSF is suitable for a client,” it stated.

“Other important factors include the risks and costs associated with setting up and/or switching to an SMSF, investment strategies, diversification, liquidity, asset choice, trustee responsibility and time commitment, and the potential benefits of professional advice when deciding to set up and/or switch to an SMSF.”

It stated INFO 274 stemmed from a review of its guidance on SMSF advice, including balances and performance comparisons between SMSFs and APRA-regulated funds.

“In response to feedback received from ASIC’s targeted industry consultation, ASIC has provided case studies in an attachment to INFO 274 to illustrate that an SMSF balance is only one factor a financial adviser should consider when determining whether an SMSF is suitable for their client,” it said.

Commenting on performance comparisons being made between SMSFs and APRA-regulated funds, it stated advisers should consider a range of factors when doing so.

“For example, the considerable structural differences, investment options available and investment return calculation methodologies adopted can make it challenging to compare performance of SMSFs to APRA-regulated funds,” it said.

“Clients should understand the costs, risks and the trustee responsibilities that they would take on in setting up an SMSF and how this compares to their existing APRA-regulated fund.”

The changes made in INFO 274 have also been reflected in the regulator’s SMSF guidance to consumers on its Moneysmart webpage and they consolidate and replace existing guidance found in INFO 205 and INFO 206.

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