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.”
Every mortgage broker worth his salt is advising clients to invest in property via SMSF. “your super is no good, get it out and go with leveraged property, the sure way to retirement riches” friendly acct does the set up, split the fee, split the property vendors commission, pick up the lenders commission. Why not when you dont have to give advice, just facilitate.
The attack on porfessional advisors through industry fund ads and Choice magazine has undermined consumer confidence in genuine professional financial planners and the value of advice, with the outcome that many investors think they can do it themselves (and thus save on fees). Sooner or later DYIers in their quest for better returns will fall prey to online spruikers promising the impossible.
Yep mortgage brokers and accountants are giving bucket loads of AFSL advice without any concern for any AFSL compliance or costs. What a complete joke of a level playing field compared to the over the top, extremely costly financial planning compliance. And has ASIC, ATO, ICAA, etc every pulled up any of these issues? No!
Agree completely.
When spruikers are handing out “free dinner” cards on the corner of Collins st, this all smacks of the same property spruikers from the Henry Kaye days.
Combine this with some of the new “free” SMSF online websites and it is simply a recipe for disaster.
Buyer beware – this is exactly when the value of advice can be demonstrated.
David Habib’s story smacks of all the arrogance that has caused the Financial Advisory profession to be in such a perilous position that it now is. It’s that very arrogance that has turned people away from financial advisors who are seen, largely correctly in my view, as nothing more that glorified “used car salesmen” who would sell their grandmother’s for a quid.
The SMSF industry is no different from anybody seeking financial advice and to try to put the “frighteners” on operators of SMSF’s as if there is some sort of “shroud of speciality” around an SMSF is a disgrace. Of course, I cannot help but draw the logical conclusion that there is a direct correlation between a lack of confidence in financial advisors and the general accounting profession being restricted in how it can communicate with its clients.
Yet, Tony, you seem to miss the fact that, in most other areas of advice, the client doesn’t carry the additional risk of going to jail, getting hit with a mass of fines or losing 45% of their capital in tax.
I have spoken to accountants who think it is ok for their client’s SMSF to lend money to the member.
I have seen accountants signing off on SMSF accounts where the Fund holds a property that is leased to related parties (and definitely worth more than 5% of the fund).
I have walked through shopping centres and seen morons, with their temporary stands, trying to flog SMSFs and property investments to anyone. Now, tell me who bares the consequences of the structure being prepared poorly? Compare this to an inappropriate geared investment property structure in the client’s own name. The difference can be discussed in the context of no disastrous return on the property itself.
I got the exact opposite impression from the article.
Whilst the industry has had reputational damage over the years it is certainly not because of high educational standards or specialist accreditations. In fact, much of it is the direct opposite – teaching of sales skills over technical competence.
Frankly, I don’t see that advocating for higher levels of competency or specialist accreditations can be a bad thing let alone arrogant. In fact, high minimum educational standards, experience and specialisation are non-negotiable elements of all advisory professions.
SMSFs are a specialist area requiring specialist advice, often from more than one specialist. Whilst I’m an accredited specialist with SPAA I wouldn’t presume to represent myself to clients on all things SMSF.
I am completing a Bachelor degree in Financial Planning and went to a job interview recently where all they were doing was SMSF. They were flying people in, setting up SMSF via an accountant up the road, ferrying them around to view properties, all in a 1 to 3 day turn around. It was scary and nothing that I wanted to be part of – walked away shaking my head. It reminds me of another time when two-tier marketing was prevalent on the GC – this is exactly what they did back then! Mum and Dad investors getting hoodwinked into something they really shouldn’t be in. Where is the fiduciary duty?
Agree completely. Dodgy mortgage brokers, dodgy planners, dodgy accountants are all feeding at the trough. It is going to get messy. Came across a family of 3 with combined $60k in super setting up a SMSF on the advice of a property spruiker. This is a far more dangerous situation than Storm Financial because it is more pervasive, more opaque and seems to enjoy the security blanket of “complying with the law”. The legislator must intervene to clamp down heavily on unlicenced advice. Also must legislate that no SMSF can be set up unless at least 1 of the members has an existing balance of at least $100k.
Yep and what about the thousands of non AFSL accountants that constantly set SMSF pensions, death benefit nominations, specific contributions, etc which are all financial products and require financial advice, fact finds, SoAs, etc.
the current system is a complete farce as not once ever has any regulator, ASIC, ATO, ICAA, ever pulled up 1 single accountant for this illegal advice.
So now they are green lighting this illegal advice but accountants simply will not do the AFSL compliance that financial adviser must do to provide the same strategic advice.
Thanks for the level playing field regulators! NOT!!!!!!
What a bloody joke.
Unfortunately, too many financial planners look at SMSFs as a grab for FUM and have no idea on how to actually advise a trustee.
Then you have property spriukers who believe all a SMSF needs is $100,000 in a fund for a deposit on a LRBA funded property. I have known accountants who only believe in geared property doing the same thing.
The lack of knowledge and ethics runs deep and wide.
Greater regulation of those advising trustees is required including making an investment property a financial product (I appreciate it is not as simple as that)