ASIC suggests requiring minimum balance for SMSFs, banning LRBAs

ASIC has suggested requiring a minimum balance to start an SMSF, banning LRBAs, and requiring SMSF trustees to undertake education as policy options that should be considered.

ASIC has been appearing before a Parliamentary Committee, which has oversight of ASIC, and was asked what policy solutions should be considered in light of recent reports by ASIC.

In its response to questions on notice, ASIC said the reports highlighted that many SMSF members don’t understand their SMSF or their obligations as trustees. ASIC also found that 10% of SMSF set up advise was likely to leave consumers significantly worse off in retirement, and 91% of SMSF set up advice didn’t comply with the law.

“Our concerns were based on the balance size of the SMSF, the age of members and the level of gearing within the fund or a combination of these factors,” ASIC told the Parliamentary Committee.

Several of the policy solutions ASIC said should be considered revolved around setting up an SMSF – requiring a minimum balance to set up an SMSF, requiring SMSF trustees to undertake education prior to setting up an SMSF, and banning Limited Recourse Borrowing Arrangements (LRBAs).

Though ASIC noted that the Council of Financial Regulators is due to give a report on LRBAs to the Government by the end of the year.

In the past ASIC has been concerned by SMSFs being started with less than $200,000.

ASIC also said it might be appropriate to require advisers to have specialist training before they can recommend setting up an SMSF. Additionally an obligation could be imposed on SMSF promoters, requiring them to consider the “type of consumer whose needs would be addressed by establishing the SMSF and the channel best suited to distributing the SMSF as a product class”.

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