ASIC states retirement incomes at risk from some SMSF property spruikers
An Australian Securities and Investments Commission report warns that while most advice given to SMSFs was "adequate" there were "pockets of poor advice".
Most of the poor pockets of advice arose from aggressive advertisements urging ill-suited investors to start a DIY fund and borrow to invest in real estate inside the fund.
"In the right hands, SMSFs can be very effective retirement savings vehicles," ASIC says.
"In the wrong hands, however, SMSFs can be high-risk.
"We do not want to see SMSFs become the vehicle of choice for property spruikers. Where we see examples of unlicensed SMSF advice, or misleading marketing, we will be taking regulatory action," ASIC commissioner Peter Kell says.
As the restrictions around borrowing to invest in real estate through a SMSF had been relaxed over recent years, ASIC noted the emergence of property spruikers touting the tax advantages of holding property inside superannuation's low tax environment.
Self-managed super funds represent the fastest growing superannuation sector in Australia, with $439 billion assets held by funds.
Since their official introduction in 1999, the number of SMSFs has grown strongly with SMSFs now accounting for a third of total superannuation assets in Australia, with $439 billion in funds under management.
As at 30 June 2012, there were over 478,000 SMSFs, with approximately 913,550 members.
Kell said ASIC had ramped up its attention given its growing importance to more Australian investors.
"We want to help ensure that we have a healthy SMSF sector.
"The decision to establish an SMSF is one of the most significant steps an investor can take in relation to their retirement savings.
"It involves taking greater personal responsibility for retirement investments.
"ASIC therefore wants to make sure those investors can be confident they can obtain good quality advice through gatekeepers such as accountants and financial planners," Kell said.
"At the very least, investors need to understand the time, resources, compliance obligations and risks associated with do-it-yourself superannuation, before moving their superannuation savings out of an APRA-regulated environment," he said.
ASIC conducted a review of over 100 investor files relating to the establishment of an SMSF considered to be in higher risk categories.
"While most advice provided was rated as adequate there were pockets of poor advice," it found.
The majority of files we reviewed had a fund balance of $150,000 or less and included some, or all, of the following features:
(a) older members (i.e. members at, or close to, retirement age); (b) members with a low income; (c) borrowing; and (d) investment in a single asset class (e.g. real property).
ASIC found issues in the following areas:
- advice was not sufficiently tailored to the needs of the investor
- replacement product disclosure was absent or inadequate
- insurance recommendations were absent or inadequate
- an inappropriate single asset class was provided to investors
- suitable alternatives to an SMSF were not considered, and
- there was inadequate consideration of the investor’s long-term retirement planning objectives.
Kell said that ASIC is also particularly concerned about the rise in aggressive advertisements pushing property purchases through SMSFs.
"We do not want to see SMSFs become the vehicle of choice for property spruikers.
"Where we see examples of unlicensed SMSF advice, or misleading marketing, we will be taking regulatory action."
ASIC established an SMSF taskforce in September 2012 in response to an increase in geared investment strategies, increasingly aggressive advertising and the collapse of Trio and the subsequent Parliamentary Joint Committee on Corporations and Financial Services’ inquiry.
