The Australian Financial Complaints Authority (AFCA) has warned advisers the processes determining whether it is appropriate to recommend an individual should establish an SMSF must be multi-faceted and cannot rely on one aspect alone.
“Justification for an SMSF really needs to extend beyond generic statements such as ‘the client wants more control over their super’. That’s a big one we see,” AFCA senior ombudsman investment and advice Alexandra Sidoti told attendees of a member forum today.
She pointed out why justification of a recommendation to set up an SMSF on these grounds are both inadequate and ambiguous.
“There are a range of investment options out there with varying degrees of investor control and SMSFs are really at the far end of the scale,” she noted.
“It’s really worthwhile to explore what other means might be available [that allow individuals] to take more control or to have bit more control over [their] investment decisions within super without moving all the way to an SMSF structure, which is really at that far end.”
According to Sidoti AFCA is also seeing some common issues arising from advice recommending the establishment of an SMSF including the failure to communicate the responsibilities an individual takes when they become a trustee and whether a person has the time to run their own superannuation fund.
She noted the second point is often overlooked if it is determined an individual has the skill to be an SMSF trustee.
“It’s really important to emphasise it’s not just skill alone that’s important here but also time and general interest,” she said.
“Clients really need to understand what is involved for them and to check they really do have the time and the interest to give to running an SMSF.
“It wouldn’t be unusual for us to see someone…who might be reasonably well educated and an adviser might be comfortable to say ‘yes, they absolutely have the sort of skills to get across their obligations in this space and understand what’s going on’,” she indicated.
“What’s often not being considered is the time and interest [factors]. A lot of the time we’re seeing recommendations being made to people in what’s called the ‘sandwich generation’ [where] they’ve got young kids, they’ve got older parents, and they’re often working quite a lot.
“So that [thought] of whether they’ve got any interest in taking on additional time sensitive and time intensive obligations of running their own SMSF is often not well considered,” Sidoti added, noting that AFCA is often not seeing good quality conversations between advisers and their clients about this issue.
Darin Tyson-Chan
Editor
Darin is the founder and publisher of Benchmark Media, an independent publishing house whose mastheads include financialobserver, selfmanagedsuper and smstrusteenews. He has been covering the financial services space for over a decade and in this time he has worked for a variety of trade publications. Darin has also written for the Money section published in The Sydney Morning Herald and The Age.
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