By: Rosemary Johnston- Monday, April 22, 2013
SMSF funds are the fastest growing sector of the superannuation market with over one third of funds invested. Many of us have had a look at our retirement lifestyle based on our accumulated funds and are very concerned at the projected budget restrictions. In a bid to create more funds through personal management and leverage of those funds many are resorting to SMSF. Most of us are uncomfortable to do this with the stock market or other intangible assets, however we are comfortable to do this with real property.
The ATO, which regulates the SIS Act of Parliament about superannuation funds recently reviewed 100 SMSF investor files with the following profiles:
- $150,000 or less,
- Older members,
- Members on low incomes,
- Borrowing, and
- Investment in a single asset class, real property.
- The advice given was insufficiently tailored to the client – without a sound knowledge of the clients goals and current situation it is difficult to give tailored advice.
- Replacement product disclosure was absent or inadequate – product disclosure statements outline the costs, risk and benefits, financial planners must give these to clients to enable them to compare the choices offered and be supported to make an informed decision.
- An inappropriate single class asset was provided to investors – only real property.
- Suitable alternatives to SMSF were not considered – consideration of other structures to support the desired goals.
- There was inadequate consideration of the investor’s long term retirement planning objectives.
The ATO gave an alert that they are focussed on this area over the next 12 months. They particularly want investors warned of the very real risk that with SMSF there is no access to a statutory compensation scheme in the event of theft or fraud. They are very concerned about unlicensed SMSF advice and misleading SMSF advertising.
All of this points to their concern being where the so-called ‘advisor’ is focused on the clients funds rather than their best interests as defined by FOFA.
The ATO plans to release a release a report of useful tips for sector participants and a consultation paper on the costs of SMSF to improve SMSF advice.