Leah Sciacca (center) and Emma Rosenzweig (right)

Regulators from ASIC and the ATO have highlighted the importance advisers have as gatekeepers for clients to open an SMSF – without them the sector may struggle to maintain credibility.

Speaking at the SMSF Association National Conference in Melbourne, ATO deputy commissioner Emma Rosenzweig said the regulator sees “significant variance” in the knowledge and capability of new and existing trustees in running their SMSFs.

“We know this has a direct correlation to a fund’s ability to meet their obligations and performance,” Rosenzweig said.

“It’s a common theme coming from trustees who do get into issues, but they tell us they didn’t understand the rules or the work it would take to run their own super fund.”

She said this has flow-on impacts for advisers because trustees often forget the ‘S’ in SMSF and believe professionals will be responsible for running the funds.

“This means you have a critical role to play in helping us maintain the health of the system by encouraging individuals to only enter and stay in a self-managed super fund if they’re fully committed to meeting their obligations,” Rosenzweig said.

TMI

The corporate regulator updated its guidance on giving advice for SMSFs last December with Information Sheet 274, which aimed to simplify compliance tips for advisers.

ASIC senior executive leader Leah Sciacca said the review of the guidance also included re-visiting early ASIC statements about SMSFs balances and performance comparisons against APRA-regulated funds.

Additionally, the updated guidance removed the minimum recommended balance for an SMSF.

“ASIC consider the superannuation balance whether high or low – while important – is only one factor when considering whether an SMSF is suitable for a client,” Sciacca said.

Other factors the regulator is reminding advisers to consider when assessing the appropriateness of setting up an SMSF for a client are risks and costs associated with setting up or switching to one, investment strategies, diversification, liquidity, asset choice, trustee responsibilities and time commitment.

“The overarching objective of [Info 274] is to help financial advice licensees and their representatives comply with their obligations for providing personal advice on SMSFs,” Sciacca said.

She added the regulator wanted to highlight the importance of advisers using their professional judgement when determining whether setting up an SMSF is appropriate for clients.

“Given the large number of SMSFs in Australia and the underlying net asset value, ASIC is very interested in ensuring consumers to whom is not suitable do not establish one and financial advisers play a critical role here,” Sciacca said.

When it came to ASIC’s view on Statements of Advice and Quality of Advice Review lead Michelle Levy’s proposal to remove them as a regulatory requirement, Sciacca said the regulator would await the results from the consultation before commenting.

Compliance concerns

Identity fraud and investment scams are the top priority for the ATO, but preventing illegal early access and supporting the SMSF auditor program are also key focus areas for the tax office in the sector.

Rosenzweig said the most common compliance issue is dealing with individuals withdrawing from their SMSF before they should.

“This behaviour appears to be on the rise and is a key area of concern for us. We do not want this industry to become known as a vehicle to illegally access money from super,” Rosenzweig said.

The tax office also deals with SMSF fraud and Rosenzweig said identity theft or investment scams are the main areas of concern in this area.

“Identity theft can allow a person to gather enough information to gather enough information to establish a fake SMSF on behalf of someone one without their knowledge and rollover from their APRA-regulated fund,” Rosenzweig said.

“That’s pretty rare but it is pretty awful when it does happen. The other way it can play out it is through investment scams where someone is encouraged to set up an SMSF to invest in a product.”

For the corporate regulator, Sciacca reminded advisers of the impending registration requirement coming on 1 July, which is in addition to the appointment that happens through the Financial Adviser Register.

“They are distinct requirements; many advisers are already deemed registered because they were registered with the Tax Practitioners Board and that is loaded on our system,” Sciacca said.

“We have written to those advisers, but for other advisers their licensee will need to go on before 1 July into the ASIC portal and register their advisers.”

The functionality to register is not open yet, but the regulator plans to release guidance, including an info sheet and webinars that will be hosted in March and April.

*Rosenzweig quote has been corrected from “we do know what this industry to become known as a vehicle…” to “we do not want this industry to become known as a vehicle…” due to a transcription error.

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