ASIC erodes SMSF advice ‘control’ pitch
The Australian Securities and Investments Commission (ASIC) has reinforced the importance of three-year-old guidance which reinforces the need for financial advisers to justify the need for clients to move to self-managed superannuation funds (SMSFs).
And, importantly, ASIC has made clear that financial advisers need to be careful in selling the establishment of SMSFs on the basis of clients having more control.
“Advisers must not mis-sell an SMSF on the basis of control. ‘Control’ can mean different things in the context of investing for retirement. Where clients have sought and/or are recommended to establish an SMSF on the basis of having greater control, financial advisers should explore what the notion of control means for the client,” ASIC said.
“There are other superannuation vehicles that may offer the desired level of control without the client also taking on the additional responsibilities, and in some cases additional costs, of an SMSF.”
In providing case studies to underline it concerns, ASIC only once specified “conflicted SMSF advice provided by an accountant.
The ASIC report was kinder in its assessment of financial advice licensees notwithstanding noting that while they had pre-vetting policies and procedures in place, they were often ineffective.
It said that, generally, advice licensees who specified minimum yearly SMSF-specific CPD requirements had a greater number of files that complied with the best interests duty and related obligations.
At the same time as releasing its damning Report 824 finding significant shortcomings in the quality of SMSF financial advice across a review of 100 files, ASIC pointed to the importance of an information sheet issued in December, 2022, strongly emphasising factors which might preclude advisers recommending clients switching to SMSFs from a fund regulated by the Australian Prudential Regulation Authority (APRA).
ASIC has made clear that financial advisers providing SMSF establishment advice can expect to be measured against the 2022 information sheet benchmarks.
In expressing serious concerns about the standard of SMSF establishment advice, ASIC provided an overview of non-compliant SMSF establishment advice, stating the main reasons why financial advisers were assessed as not complying with the best interests duty included the financial adviser not:
› basing all judgements in advising the client on the client’s relevant circumstances (58 files)
› conducting a reasonable investigation and assessment of financial products (53 files)
› exercising their judgement to identify the client’s objectives, financial situation and needs relevant to the subject matter of the advice (50 files), and
› making reasonable inquiries to obtain complete and accurate information where it was reasonably apparent that information relating to the client’s relevant circumstances was incomplete or inaccurate (48 files)
ASIC said it was also concerned that:
› for 57 files, the financial adviser did not demonstrate compliance with the requirement to provide appropriate advice under s961G
› for 51 files, the financial adviser did not demonstrate that they had prioritised the client’s interests under s961J, and
› where the SMSF establishment advice involved replacing an existing financial product (98 files), information on the product replacement was inadequate in 47 files.
Classic ASIC! The heat is on their massive failures with MIS. So what do they do?
Release a report, which is highly subjective and throws financial advisers under the bus, diverting attention away from the huge consumer losses caused in large part by ASIC’s inaction and perverted priorities.
Yep just like the targeted Life Insurance churn report where ASIC selected 50 files from know Churners. LIF resulted, that’s be wonderful hey ASIC.
Now ASIC target known dodgy SFSF files.
Wow ASIC, imagine finding some Dog SH#T on the ground.
If you Faceplant into it, do you think you will smell SH#T?
Arrogant
Selective
Incompetent
Corrupt
Lets be honest, very few clients need an SMSF and ASIC are right on this one
Based on ASICs previous reviews, you have to wonder if it was like the insuance review, targeted to the worst offenders with a predetermined agenda and from it then infer the whole industry has an issue. Where we now know there was not an industry wide issue.
Also there is reference one accountant, just how many of those reviewed were accountants/property sprukersetc and not in fact fininacial planners?
This was a targeted review. It was not a random sample. This review is not reflective of the SMSF Advice sector as a whole. ASIC leave a few hints to this respect, however have fundamentally failed their own test of “efficiently, honestly and fairly”.
The first hint in the media release, are a mere couple of words in the second paragraph that states this was a “risk-based review”. So what does ‘risk-based’ mean and will the journalists and other key stakeholders understand this. I very much doubt it. There is a brief reference in the Executive Summary to suggest that the sample was not representative of the financial advice sector. For a deeper explanation, we can go to two sections of the report. Pages 14 and 15 of the report discuss the review methodology, explaining that the selection of licensees and advisers was on the basis of risk indicators. These risk indicators include reports of misconduct, IDR/EDR data, member demographics, fund data and the volume of SMSFs being established. So it is obviously very targeted and miles away from random.
The top of page 15 even says “The sample was not selected with the intention of being random or representative of the financial advice sector”. Not that this line will be reported in any of the media coverage. There is further explanation on page 31 on the risk indicators that were used to ultimately select these files. Risk indicators that I think we would all suggest might be indicative of questionable advice.
This all reminds me of ASIC Report 413 back in October 2014, where an ASIC report on life insurance advice was used as the trigger to drive fundamental changes in the remuneration paid for risk advice. Once something like this gets a head of steam, it becomes difficult to control and the facts never get in the way of what some consider to be a good story that might support their philosophical view.
Amazing Des Nutmeg, never thought the Industry Super Fund mouth piece on these comments would speak so truthfully and defend most SMSF and Advisers.
Given ISFs have killed Advisers for decades and also tried to kill SMSFs for decades, it’s a pleasant surprise.
Now what’s your real angle for ISF here ?
Why would you commission such a report to be undertaken if the sampling is biased?
At least they admit it.
How can anyone have any sense of trust and confidence in ASIC?
It is time to gut ASIC and rebuild it from scratch – in my opinion it is a deeply broken institution which is captured.
Appalling stuff.
Good work Des. I’m not surprised one bit. This is the dodgy REP413 all over again. You had to dig deep into that report to discover it was targeted at high volume advisers, which of course would be a major risk factor for churning. Yet this important fact was omitted from the Executive Summary and then Peter Kell went onto ABC Lateline Business the night it was released and he flat out implied it was a representative sample. Shocking behaviour from a regulator. It needs to be called out.
To be fair – it’s no worse than unnecessarily throwing hand grenades at conservatively run mortgage funds in a bid to get a headline.
ASIC should be disbanded. It’s an impaired asset.
RE SMSF – there are concerted forces that want to see that part of the Super sector rubbed out. Seems ASIC has joined the side wanting this.