by Sinclair Taylor

A fascinating research study was conducted recently by ASIC and it returned some disturbing results. Within this column, and within broader Westpac SMSF marketing and communications messages, I have always stressed the absolute necessity of getting good advice around the establishment and ongoing management of your SMSF. But it seems some trustees, assisted by advisers who should know better, have not been doing all they can to fully understand the challenges, as well as the benefits, of an SMSF.

ASIC is the regulator of the ‘gatekeepers’ of the SMSF sector – the advice providers, SMSF auditors and providers of financial products and services to SMSFs. ASIC’s SMSF taskforce looking into the quality of advice within the SMSF sector recently reviewed 100 investor files sourced from 18 financial planning and accounting businesses, targeted by ASIC’s surveillance.  The files selected related to the establishment of an SMSF, for consumers in higher-risk categories - people with lower super balances (less than $150,000), and with one or more of the following attributes: older members, members with low income, borrowings inside the SMSF, or investments in a single asset class (eg. real property). The fact that such high-risk SMSFs even exist is cause for concern.

Of the files reviewed, 28.4 per cent were found to have been the subject of ‘poor advice’, 70.3 per cent were offered ‘adequate advice’ and just 1.3 per cent had received what ASIC deemed, ‘good advice’.  Hardly a glowing result.

The good, the bad and the ugly

If you’re considering establishing an SMSF, or are already a trustee of an SMSF, these findings could be valuable for you.

ASIC’s SMSF taskforce defined ‘poor’ advice as having the following characteristics:

  • Did not meet the investor’s financial needs and objectives
  • The investment strategy was inappropriate
  • Use of gearing inside the SMSF was inappropriate for the investor
  • Investor demonstrated low financial literacy and was incapable of running an SMSF
  • Original super fund balance was too low and not suitable for an SMSF
  • Insurance advice was inappropriate

‘Good’ advice, however, looked more like this:

  • Considers all of the investor’s relevant information
  • Pays specific attention to the investor’s financial needs and objectives
  • Includes well considered personal insurance recommendations
  • Clearly explains the scope of the advice
  • Is supported by a logical and clear Statement of Advice

Safe harbour steps

If you’re keen for your SMSF to be a financial success (and I’d be perplexed if you were not) then before you even establish the fund you ought to go through a process that educates you fully on all aspects of such a venture.

Within an SMSF all legal and financial responsibility lies with you. If something goes wrong there is little scope to blame your adviser or your accountant or your lawyer – unfortunately it’s all on you. 

So be sure to first speak with somebody that can educate you responsibly and in great detail around:

  • The roles and obligations of SMSF trustees, including penalties for contravention of regulations
  • The suitability of an SMSF structure
  • Risks involved in an SMSF structure
  • The right investment strategy
  • What’s involved in switching from your current fund into an SMSF, including changes in insurance options
  • Alternatives to an SMSF structure

Importantly, make sure your adviser specialises in SMSF.  All of the major accounting and financial planning bodies are evolving their professional education and support for advisers that specialise in SMSF, as does SPAA, the Self Managed Super Funds Professionals Association.  If your adviser cannot thoroughly brief you on all of these areas, walk away and find somebody else. Your future, quite literally, depends on it.

I have said it before and in the future you will hear me say it again and again, an SMSF is a powerful investment structure for the right type of investor, but it is not for everybody.

Don’t put your retirement funds into a structure you don’t fully understand. It’s your retirement and your family’s future. Demand expert advice.