More bad SMSF borrowing advice revealed at Royal Commission

The Banking Royal Commission has commenced hearings into superannuation.

The banking Royal Commission has heard of more bad superannuation advice, including around borrowing to buy property using SMSFs.

The Royal Commission heard how Adam Palmer, an adviser with Genesys Wealth Advisers – an AMP dealer group – was advising clients set up SMSFs to buy property, involving a company he part-owned.

It one case it seems that clients wishing to renovate their home were advised to establish SMSFs, roll their existing superannuation into the SMSF, and use it to purchase an investment property. There was no evidence that their risk tolerance was assessed.

Mr Palmer had a 60% ownership in a ‘property advocacy business’, which wasn’t disclosed or approved by the licensee.

An audit of Mr Palmer by AMP found that “all SMSF LRBA clients are referred” to the business, which sources properties. The audit was unable to determine if any “clients legitimately sought advice on buying property in a self-managed superannuation fund”.

“The files do not demonstrate that the adviser has either adequately disclosed this conflict of interest, documented any fees received from the property business or profit split, or adequately managed the conflict of interest by placing the clients’ interests ahead of his,” says an excerpt from the audit report.

“The knowledge of the adviser with respect to SMSF and SIS legislation is questionable.”

According to the same report the adviser “seemed genuinely surprised” when told that SMSFs couldn’t pay for capital improvements on property held through an LRBA.

The audit identified that Mr Palmer had engaged in similar conduct with nine other clients.

The Commission also head that Mr Palmer lacked accreditation to advise on either SMSFs or borrowing.

Internal emails said that until Mr Palmer provided documentation to support his SMSF training he couldn’t provide SMSF advice. However the AMP witness said they hadn’t seen anything in the documents suggesting steps were taken to prevent Mr Palmer from providing SMSF advice.

The Commission was told that AMP decided to terminate the authority of Mr Palmer, but he resigned before he was terminated.

This is not the first case of bad SMSF borrowing advice heard by the Commission. In an earlier case it was only after a Westpac client had sold their home and set up an SMSF – at some expense – that they were told they couldn’t live in the bed-and-breakfast they intended for their SMSF to purchase.

Switching super fund advice costs almost 25% of balance

The banking Royal Commission heard how a AMP client lost almost 25% of a superannuation account to fees after following advice to switch to an AMP-owned fund.

An adviser, referred to by the Commission as ‘Mr E’, was an authorised representative of AMP Financial Planning. A couple sought advice from Mr E, to check that the performance of their super funds would meet their goals. Mr E advised the husband to roll $68,000 he had with TAL Super and $125,000 with MLC master key superannuation into MyNorth super. Mr E advised the wife to roll $46,000 from Vision Super Saver to MyNorth super. None of TAL, MLC or Vision are owned by AMP, but MyNorth super is an AMP product.

In rolling over his balance from TAL the husband incurred an exit fee of $16,189.05 from his approximately $68,000 balance. The AMP witness before the commission agreed that there didn’t appear to be benefits from switching funds to outweigh the loss of almost a quarter of the superannuation balance – including no attempt to compare the likely performance of the super funds.

AMP has not yet provided remediation, such as compensation, to these clients and was unable to say when this would occur.

The Commissioner has directed that the real names of Mr E and the couple involved not be published, as they are “unaware of these circumstances, and I do not think it right that they should learn of these things or deduce these things as a result of evidence being led in the Commission”.

Related: Rolling over to SMSF would have cost client $500,000

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