SMSF advisers working with high-net-worth clients may need to reconsider how they will be viewed by the Australian Financial Complaints Authority (AFCA) if there is a dispute after a financial services lawyer noted it was approaching the law in a different way than regulators.
Holley Nethercote partner Samantha Hills said this caution stemmed from AFCA case from last year, where an advice client was treated as a wholesale investor for SMSF purposes based on a certificate from their accountant but viewed as a retail client by the authority.
“This case is quite disturbing because there is a widespread view that if you have an accounting certificate that’s okay, and a high proportion of clients [with these certificates] are recommended to move into SMSFs and are then treated as wholesale,” Hills said at the Financial Advice Association Australian Roadshow 25 in Sydney last week.
“There is a different level that AFCA have applied, and that’s the $10 million asset level in SMSF, so this is a live issue.
Hills added that based on this AFCA is looking at how the client was treated and what was appropriate for them given the law on this matter was unsettled.
“When it comes to SMSFs, it’s understanding who is your client at any particular point in time.”
“When an individual walks into your offices and you’re recommending that they set up an SMSF, it’s the individual that you’re advising, so they would typically be retail at that point.
“When it then comes to advising the trustee, once the SMSF is on foot, about what investments to put in place, the law has been unclear over the years about whether that advice relates to superannuation services or just advising a trust about what investments to invest in,” she noted.
“AFCA has its own separate jurisdiction. It can’t completely ignore the law, but it largely makes its decisions on the basis of fairness.
“To date, the Australian Securities and Investments Commission has said its position is that the law is unclear on this, so AFCA has come out and stated it was going to take the view an SMSF trustee should usually be treated as retail.
“Regardless of what the legal position is, we’ve reached this point with AFCA, where we need to treat SMSF trustee clients as retail, as a matter of course.
“If you don’t they could still take a complaint to AFCA, even if you’ve treated them as wholesale, and then AFCA will treat them as retail, and therefore impose all the regulatory obligations that go with the client being a retail client.”
Hills comments were confirmed by AFCA during a member forum held last week where it stated it was using the $10 million threshold as its only measure of whether an SMSF trustee was a retail or wholesale client.
