Financial advice within the self-managed superannuation fund (SMSF) sector is generally adequate but will improve when disreputable operators are driven out permanently.
This is the view of ASIC Commissioner Peter Kell, who this week outlined the regulator’s increased focus on the rapidly growing SMSF market at a CPA Australia SMSF conference in Sydney.
While the regulator’s primary role in relation to SMSFs is to regulate the gatekeepers – accountants, financial planners, SMSF auditors and providers of products and services to SMSFs – an ASIC taskforce recently reviewed the quality of advice provided to some lower balance SMSFs (funds with a balance of $150,000 or less).
Kell (right) told delegates that 100 investor files relating to the establishment of an SMSF were reviewed and, while not a representative sample, were intended as a starting point to examine the more potentially problematic end of the market.
“The purpose of our review was threefold. First, we wanted to gain a better understanding of advice practices in the SMSF sector to enable us to more effectively target risky conduct and potentially problematic market practices,” he said.
“Secondly, we wanted to test whether gatekeepers were doing their job in ensuring that only those investors for whom an SMSF was suitable were advised to set up an SMSF. Thirdly, we wanted to explore whether there were weaknesses in the advice giving process in order to develop some practical tips for improving the quality of SMSF advice.”
Picking the pockets
Complete findings and the watchdog’s recommendations will be released later this month but Kell was at pains to point out that, unlike with similar “secret shopper” investigations, the regulator had purposefully set out to identify areas of concern.
“It is important to be very clear upfront that we did not select a random sample of files for review. Instead, we targeted files that looked more likely to be higher risk for SMSF members,” he said.
“We rated the personal advice we reviewed as good, adequate or poor. Overall, we concluded that the majority of investors in the sample reviewed received adequate advice.
“While the majority of advice provided was adequate we did find concerning pockets of poor advice. Much of this advice involved recommendations that investors set up an SMSF to gear into real property.
“Where this advice was inappropriate for the individual investors, ASIC will be following up and taking regulatory action.”
However, Kell said the regulator had found room for significant improvement in aspects of the SMSF advice giving process.
“Notably, we also found that investors were not warned about the very real risk of not having access to a statutory compensation scheme in the event of theft or fraud,” he said.
“Going forward, this will be an area of focus for us. We expect to see advice providers warning investors about this risk.”
