A new report from the Australian Securities and Investments Commission (ASIC) has flagged concerns with advice provided about the establishment of SMSFs not being in the client’s best interests, but the SMSF Association has noted the findings are based on a relatively small, targeted, risk-based sample.
ASIC stated in “Report 824 – Review of SMSF Establishment Advice” that of the 100 advice files it examined, 62 failed to demonstrate compliance with the best interests duty and 27 raised concerns about client detriment relating to the recommendation to set up a fund.
“The key issues identified included not basing all judgments on clients’ relevant circumstances, including inappropriately using the notion of control to justify recommending SMSFs without exploring what control meant to the clients,” the report stated.
“[Further issues were] financial advisers acting as order-takers and not conducting an investigation and assessment of [other] financial products, and not giving priority to the interests of clients where there were conflicts of interest, including in relation to advice to establish an SMSF to acquire off-the-plan properties through limited recourse borrowing arrangements.”
While ASIC pointed out poor establishment advice put retirement savings at risk, the report was specifically based on advice files it knew contained elements of poor advice provided between 1 May 2023 and 30 April 2024 and only considered the establishment advice and not any subsequent statements or records of advice.
“We used risk indicators to select a sample of 100 SMSF establishment advice files for our review. The sample was not selected with the intention of being random or representative of the financial advice sector,” the report added.
“We identified instances of financial advisers recommending retail clients establish an SMSF when an SMSF was not suitable and was likely to be detrimental to their lifestyle and retirement outcomes.
“The selection methodology considered information relating to reports of misconduct provided to ASIC, internal and external dispute resolution data, and publicly available information from internet searches.
“The purpose of our review was to understand why some retail clients are advised to establish an SMSF even though an SMSF is not suitable or beneficial for them and may adversely affect their retirement outcomes.”
SMSF Association chief executive Peter Burgess stated the report highlights the importance of access to competent, specialist advice when setting up a fund, but should be viewed in the context described in the report.
“It’s important to recognise that ASIC’s review was based on a targeted, risk-based sample of advice files, not a random selection,” Burgess said.
“The advice files examined situations where, on face value, the establishment of an SMSF appeared to be unsuitable for the client. As such, the findings are not representative of the broader quality of SMSF advice currently being provided across the sector and this perspective is important.”
He also pointed out ASIC’s comments on whether a consumer would be worse off as a result of the advice provided was a subjective assessment when evaluating long-term retirement outcomes.
