A compliance expert has warned the Australian Securities and Investments Commission’s (ASIC) new approach to SMSF establishments in its recently released Information Sheet 274 (INFO 274) could create issues for practitioners from a professional indemnity (PI) insurance perspective should the guideline be followed.
Alexis Compliance Risk Solutions founding director Christina Kalantzis pointed out one organisation offering PI cover underwriting services has stipulated its own required balance that must be in place for SMSF members before it will insure advisers servicing these types of clients.
“AXA won’t cover a lot of AFSLs (Australian financial services licensees) that (include service on high volumes of) life insurance or self-managed super funds with balances less than $500,000,” Kalantzis told delegates at the Financial Observer Professional Indemnity Insurance Symposium held in Sydney last week.
“Isn’t that interesting because ASIC just released a guidance paper didn’t they and what did they say? They took the recommended minimum establishment balance of $500,000 off,” she observed.
“They actually said we’re not going to recommend minimum balances anymore. As advisers you can do what you like as long as the advice to set up the SMSF is appropriate, and is in the best interests of the client and you can justify it.
She stressed to advisers the need for them to examine their PI cover in great detail to determine if any terms specify only SMSFs with a member balance of more than $500,000 can be serviced.
Moreover she pointed out some underwriters are going even further than imposing member balance limit on SMSF clients and are instead voiding cover if the licensee provides advice to any SMSFs at all.
Kalantzis emphasized the need for advisers to be proactive regarding their knowledge about the PI cover they have in place.
“You need to know what your PI insurance is and what you’re covered for and what you’re not covered for. Unfortunately a lot of people find out what they’re not covered for when there are claims afoot,” she recommended.
ASIC released its revised guidance on providing SMSF advice, Information Sheet 274, in December last year.
