Financial advisers must promptly identify and document their clients’ motivations for wanting to establish an SMSF at the beginning of the advisory process to avoid potential legal problems in the event of an audit or a dispute.
Speaking at the SMSF Association Technical Summit 2023 on the Gold Coast recently, association head of membership and corporate development Neil Sparks told delegates: “If we spend the time at the beginning of the conversation fleshing out this information and prosecuting the questions to the client around why they want to set up a SMSF, instead of just receiving an instruction, then suddenly we’ve got clarity on our client’s goals and objectives.
“We’ve also got information that we can use later when we’re producing a statement of advice or making a recommendation.”
Fellow event presenter, founder and head of legal at financial services regulation law firm Kit Legal Catherine Evans added when a client expresses interest in establishing an SMSF for the purpose of gaining control and flexibility over their superannuation funds, advisers should delve into the underlying reasons driving this decision.
“Control can mean so many different things, so fleshing out what that means to the client helps when we are looking at your recommendations later because the whole advice process flows from this initial information gathering,” Evans noted.
“The reason we harp on about this [is because] of the 110 Australian financial services licences and adviser files we look after, most files do not have this done well at the start. Being able to really articulate in writing on the file that information-gathering process really helps.
“In our view, the biggest commercial risk is where there’s an Australian Financial Complaints Authority complaint later and the file is pulled out, particularly with a transfer of wealth to the next generation, and that’s when everyone will come back to what’s on the file in this process.
“The art of being a good adviser is asking those right questions and being able to prompt out of someone what they mean by wanting an SMSF. Ultimately the SMSF is just the structure and the [clients] are wanting to achieve something else, so it’s getting to what they want to achieve.”