The self-managed super funds industry is in danger of becoming a lawless frontier if rogue advisers and opportunist marketers are allowed to continue touting for business.
This is the view of David Hasib, director of financial planning at accounting, property and wealth advisory group, Chan & Naylor, who claims a quick internet search reveals the growing numbers of online spruikers – some bearing no relevant qualifications at all – who are cashing in on the SMSF sector’s popularity.
Hasib wants the Australian Securities and Investments Commission (ASIC) to make educational and assessment requirements for SMSF advisers a priority, but accepts that the regulator is presently stretched as it consults on several aspects of the Future of Financial Advice (FoFA) reforms.
Goldmine of opportunity
“Australia’s financial landscape has grown dramatically in its diversity and complexity over the years, yet education requirements for advisers have lagged,” he said.
“It should not be acceptable to play the role of financial adviser in the general sense – the industry is evolving so quickly that it requires specialised advisers that are up to date and add real long-term value to clients.”
Specifically, Hasib believes that SMSFs are now a popular and irreversible trend and, as with any new and evolving product in a competitive market, they “have become a goldmine for opportunist marketers, highlighting serious and potentially devastating loopholes in the regulatory system”.
Cause for concern
Figures suggesting as many as 600 self-managed super funds are opened each week, coupled with anecdotal evidence that mum-and-dad investors are not seeking professional advice as part of an overall retirement strategy, have Hasib concerned.
“The spotlight has so far remained fixed on the roles and responsibilities of trustees,” he said.
“Little to no attention has been cast over the wider industry, including those developing the products, the many underqualified advisers or even the growing number of promoters with no qualifications to bear – all of whom share responsibility for creating an environment of risky decision-making which is placing increasing numbers of investors in dire financial straits.”
No barriers to entry
Currently, almost anybody can promote SMSFs to potential investors and Hasib says rogue advisers are failing to alert investors of common pitfalls: whether the investor has sufficient money for the fund to be beneficial; what investment options are available or most suitable; the trustees’ roles and responsibilities; additional costs incurred in the changeover and the benefits, such as personal insurance cover previously obtained under group rates with automatic acceptance levels, that may be lost.
He accepts that the average SMSF investor is more savvy – “with the average SMSF holding $900,000, they must have made some good decisions” – but argues that, as the trend takes hold, a greater focus on consumer education will be paramount.
Bad advice slips through the net
“The government is essentially underwriting the decision-making of mum-and-dad investors,” he said.
“ASIC has acknowledged inadequacies in the current regulatory framework and will go some way to tightening qualification requirements for advisers in the upcoming FoFA reforms.
“However, urgent action is needed now to ensure trustees are not throwing away life savings because bad advice is allowed to slip through the net in the run up to the changes in June 2013.
“The problem is detrimental to those on the receiving end of uninformed advice, as well as the reputation and integrity of an otherwise healthy industry, which will find itself tarred with the same brush.”
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