Following the release of a new information sheet in late 2022, ASIC is launching an investigation to assess industry compliance.
Info Sheet 274: Tips for giving SMSF advice was released just over 18 months ago by the regulator to address substandard advice regarding the establishment of SMSFs. The primary objective of the new information sheet was to ensure licensees comply with their obligations.
Of particular concern were instances of inappropriate advice and evidence of exposure to fraud for some members, including issues with borrowing and related-party property purchases within SMSFs.
Speaking earlier this year at the National SMSF Conference in Brisbane, ASIC Senior Executive Leader Leah Sciacca put these concerns into context.
“We think SMSFs are suitable for some but not all consumers”, said Sciacca.
“Financial advisers advising clients about their super must use their professional judgement to consider the broad range of relevant factors to ensure SMSFs are established only where it is suitable for the unique objectives and circumstances of the individual client.”
Now, ASIC will review a yet-undefined sample of advice provided since the release of Info Sheet 274 to ensure the information sheet and advisers are doing their jobs.
What Did ‘Info Sheet 274: Tips for Giving SMSF Advice’ State?
Information Sheet 274 consolidated and replaced several previous documents (Information Sheets 205 and 206). While most of the information in INFO 274 is similar to that found in 205 and 206, there are a few key points of difference, especially concerning advice on establishing SMSFs, as follows:
ASIC removed the previous $500,000 threshold to indicate the “appropriateness of advice” to establish an SMSF.
This update is likely based on 2020 research by the University of Adelaide which found no material difference in investment performance for funds with balances between $200,000 and $500,000.
Similarly in 2022, the actuary firm, Rice Warner found operating costs for an SMSF fund with $200,000 to be comparable with an APRA fund.
Both studies found $200,000 as the baseline for reasonable operating costs and returns. Below this threshold, performance was diminished. Trustees considering a shift to self-managed superannuation should, therefore, keep this $200,000 figure in mind.
Your Superannuation Balance is Just One Consideration when Establishing an SMSF.
The information paper also stresses that, while superannuation balance is important, it’s simply one of many factors to consider when deciding whether to establish a self-managed superannuation fund.
ASIC points out: “Other important factors include the risks and costs associated with setting up and/or switching to an SMSF, investment strategies, diversification, liquidity, asset choice, trustee responsibility and time commitment, and the potential benefits of professional advice when deciding to set up and/or switch to an SMSF.”
Weighing up these factors is a complex task, and shifting from a retained fund to a self-managed super fund is a big decision – possibly with significant implications for retirement. Therefore, it is a decision that will typically require professional advice, leading to ASIC’s next key update.
Specialist SMSF Advice Requires SMSF Skills & Experience
ASIC has developed Information Paper 274 to emphasise that professionals providing advice regarding SMSFs, specifically the establishment of a self-managed superannuation fund, are obliged to have specialist SMSF knowledge. ASIC also stresses the importance of maintaining this knowledge and expertise over time to fulfil obligations and correctly exercise their professional judgment.
How to Help Clients Assess SMSF Operational Costs
Information sheet 274 provides an overview of the costs of running an SMSF and suggests that advisers may also use statistical data on SMSFs to inform clients of costs. ASIC advises against using the ATO’s published Return on Assets (ROA) performance figures for the SMSF sector; however, because these figures are a KPI across the entire SMSF sector and can’t be directly compared to APRA fund investment performance because data inputs and methodologies used are different.
Penalties for Non-Compliance
Finally, Information Sheet 274 includes a new section regarding penalties and the requirement for financial advisers to inform clients of the financial implications and consequences of non-compliance with superannuation, corporation, and taxation laws.
Conclusion
When announcing the upcoming review of SMSF establishment advice provided since the release of the new information sheet last month, ASIC reminded the industry that it will continue its co-regulatory work with the ATO in response to “poor practices in the SMSF sector, including sharing information about actual or potential misconduct and taking action where we see inappropriate financial advice.”
Ensure your SMSF establishment advice meets the highest standards. Reach out to our expert team today for guidance tailored to your unique circumstances and stay ahead of the regulatory curve. Contact us now to protect your financial future: admin@intello.com.au