ASIC warns agents about legal obligations for SMSF advice
Real estate agents discussing self-managed super funds with potential investors had better watch out.
The Australian Securities and Investments Commission warns that they must understand their legal obligations – or face penalties.
That’s because those who recommend their clients use an SMSF to invest in property must have an Australian financial services licence.
ASIC has written to the REIA, the state and territory real estate institutes and property investment associations setting out its concerns and urging them to alert their members.
With the increasing popularity of SMSFs and property investment, many estate agents may not even realise they are providing financial product advice without a licence.
If providing any advice, agents must ensure they comply with legal obligations under the Corporations Act 2001.
ASIC’s letters to the REIA and the real estate bodies warn that:
If a person does not hold an AFS licence or is not authorised by an AFS licensee, they can only provide factual information to consumers in relation to SMSFs.
Where an AFS licence is required, estate agents must stop offering and providing financial services or advertising the provision of financial services until an AFS licence is obtained or they become a representative of an AFS licence holder.
A person convicted of carrying on an unlicensed financial services business may be fined up to $34,000 or imprisoned for two years or both. If a company is convicted it may be liable to penalties, including a fine of up to $170,000.
ASIC commissioner Greg Tanzer said ASIC’s role in relation to SMSFs was to regulate the ‘gatekeepers’ – the advice providers, SMSF auditors, and providers of products and services to SMSFs.
‘We want to ensure the SMSF sector remains healthy and vibrant so investors can be confident that, if they are receiving advice about investing through an SMSF, their adviser holds an Australian financial services licence and is aware of its obligations,’’ Tanzer said.
ASIC is also aware that some real estate agents are offering commissions or benefits to financial advisers for recommending investors use an SMSF to buy those agents' properties.
‘’Such commissions or benefits may be conflicted remuneration and financial advisers may be banned from receiving them under the future of financial advice reforms,’’ Tanzer said. This is because the commissions or benefits could reasonably be expected to influence the financial product advice given to retail clients.
The SMSF Professionals’ Association of Australia is backing ASIC, with CEO Andrea Slattery saying: “The ASIC warning is both timely and needed in light of the enormous media attention that has been given to this issue in recent months.
“From SPAA’s perspective, it’s been our constant stance on SMSFs investing in property that there are technical dangers, and, as such, we have always recommended that trustees get professional licensed advice, either from a professional SMSF advisor who holds a licence or is an authorised representative of a licensee.
“We took that position a year ago in a detailed technical bulletin to all our members warning of the risks of property investment, and it remains our position today.”
Slattery says property is an investment option for an SMSF, but, like any investment, it must be suited to the fund and take into consideration the members’ circumstances.
“In relation to property, there may be an interest in this asset class now because, in a low interest environment, people are looking for investment opportunities with higher yields than cash or bonds, and while there are still fears held about equities.
“It’s exactly because of this heightened interest in property that the regulator should be on the front foot to warn the real estate industry that its members must use licensed advice when recommending setting up an SMSF or recommending an SMSF acquires a property.’’