Just over a year after the release of its updated info sheet on SMSF advice, ASIC will conduct a review to assess industry compliance.
Speaking at the SMSF National Conference on Wednesday in Brisbane, ASIC senior executive leader for financial advice Leah Sciacca revealed the review would cover the quality of advice provided.
“We think SMSFs are suitable for some but not all consumers,” Sciacca said.
“Financial advisers advising clients about their super must use their professional judgement to consider the broad range of relevant factors in order to ensure SMSFs are established only where it is suitable for the unique objectives and circumstances of the individual client.”
This principle also expands to so-called choice super funds, as ASIC released a report on Wednesday which found that advisers were not always addressing product underperformance for their clients effectively. The corporate watchdog urged advisers to do their due diligence.
Sciacca noted the regulator had previously undertaken SMSF advice thematic surveillance and continued to remain an area of interest.
“As well as observing instances of inappropriate SMSF advice in those past reviews, we have in our enforcement work seen examples where SMSF consumers have been exposed to financial adviser fraud and dishonesty, sometimes involving borrowing and related party property purchases,” Sciacca said.
The catalyst for the review was off the back of ASIC’s updated ‘Info Sheet 274: Tips for giving SMSF advice’, which has now been over a year in action.
“The overarching objective of the info sheet was to help licensees comply with their obligations,” Sciacca said.
“This year we will review a sample of SMSF establishment advice given since the release of those info sheets to assess the quality of the advice. In this space we will also continue our co-regulatory work with the ATO responding to poor practices in the SMSF sector including sharing information about actual or potential misconduct and taking action where we see inappropriate financial advice.”
Illegal access
Numbers presented by the ATO in the same session showed the impact of illegal early access – $381 million was illegally accessed in FY20, a figure that fell to $256 million in FY21.
But while that number had dropped, ATO deputy commissioner Emma Rosenzweig said the tax office prevented $168 million leaving the system in FY21, an increase of the $126 protected in FY20.
While the latest data covered up to FY21, Rosenzweig said preliminary indicators for FY22 suggested illegal access was still prevalent.
“We continue to see many new trustees enter the system with the sole intention of raiding their retirement savings, sometimes facilitated by promoters charging a large fee,” Rosenzweig said.
“When a newly-established SMSF makes a rollover, but then doesn’t lodge its first return, this is a big red flag. Currently 16 per cent of funds that were registered in 2022 have failed to lodge their first return, which means these returns are over 12 months overdue.”
Breaking records
In a presentation before the commencement of the thought leadership breakfast on Wednesday morning to open the conference, Class CEO Tim Steele said the most recent ATO data (as of the end of the September quarter) found that net establishments of SMSFs was 7727.
“Which is in fact the highest number of net establishments in almost eight years,” Steele said.
While enthusiastic about the growth, SMSF Association CEO Peter Burgess said on a panel discussion during the breakfast that it was important to maintain safeguards to protect integrity in the sector.
“If you look at the number of disqualified trustees… we’ve seen a significant increase in the number of individuals who have been disqualified as SMSFs trustees over the last few years to the tune of 252 in 2021/22 to 750-odd,” Burgess said.
“We’re on track to break another record this financial year. That’s something we have to get on top of. Included in that are a lot of people who are accessing funds illegally.”
Burgess said it was important to prioritise a standard of quality in the sector to prevent further unnecessary regulation.
“If we don’t get on top of that, what we don’t want is further regulation, we have to be open minded to further regulation that weeds out those individuals that shouldn’t be in SMSFs,” Burgess said.
“That’s the balance we need to get. It is concerning when you see the number of individuals being disqualified and a significant number of those individuals who are entering the SMSF sector to access funds illegally.”
