10% of SMSF set up advice likely to leave client significantly worse off

ASIC has found that 10% of SMSF set up advice is likely to leave people significantly worse off, with 91% of SMSF set up advice files not complying with the law.

The regulator reviewed 250 client files randomly selected from ATO data and assessed them for compliance with the ‘best interest’ duty and other obligations in the Corporations Act. It found that 91% didn’t comply, in part due to failings in record-keeping. In 19% of files ASIC found clients were at increased risk of financial detriment due to a lack of diversification and in 10% the client was “likely to be significantly worse off in retirement due to the advice”. ASIC said it will be taking “follow up” regulatory action.

ASIC Deputy Chair Peter Kell said the standard of SMSF advice must improve.

“A healthy and robust SMSF sector is an important part of our super system. However, it is clear lots of people are setting up self-managed super funds without knowing whether this is the best option. The financial advice sector has significant work to do to lift their performance on this issue.”

Market research conducted by ASIC found that many SMSF trustees do not fully understand their obligations as SMSF trustees, or the risks of SMSFs.

The online survey found 33% of SMSF trustees didn’t know an SMSF was required to have an investment strategy and 29% believed SMSFs have the same protection from fraud as prudentially regulated super funds.

32% of the trustees found their SMSFs more expensive than they had expected and 38% found an SMSF more time consuming than expected.

“Decisions about super are some of the most important a person can make. However, ASIC found there is a lack of basic knowledge of the legal obligations in setting up or running an SMSF,” said Mr Kell.

“It is also concerning many people with an SMSF have not understood the importance of diversification, which puts their financial future at risk.”

ASIC found that some people were using SMSFs solely as a way to invest in property, and were doing so without a wider investment strategy. This may be driven by the growing use of ‘one-stop-shop’ firms involving an adviser with a relationship with a real estate agent or developer, which ASIC also found.

“This put people at increased risk of getting poor advice that did not take account of their personal circumstances or is not given in their best interests,” said ASIC.

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