Self-managed super funds: The importance of getting the right advice

Money & Life
(Financial Planning Association of Australia)

The Australian Securities and Investment Commission (ASIC) has released a report detailing its findings from a large research project undertaken into self-managed super funds (SMSFs). The research looks into member experiences in setting up and running an SMSF and whether advice providers are complying with the law when providing personal advice to retail clients to set up an SMSF.

Since the introduction of SMSFs in 1999, many consumers, motivated by a desire to gain control over their investments and financial futures, have opted for SMSFs over retail superannuation products. Today, there are more than 590,000 SMSFs holding assets worth nearly $697 billion. This figure represents 30 per cent of all funds held in superannuation. Amazingly statistics from the ATO show that people under 40 are the fastest growing segment of the sector. People who earn less than $60,000 a year now account for 55 per cent of SMSF members, and 20 percent of members are under 45 years old.

Considering the immense and growing popularity of SMSFs, ASIC saw the need for consumers to be fully aware of the risks and obligations involved with moving their superannuation into a self-managed super fund, and wanted to highlight the important role that access to quality financial advice plays in guiding consumers to make the right decision.


Consumers can be caught out by the complexities of SMSFs

The report highlighted a number of areas where consumer expectations around SMSFs are misaligned with the reality of running one. The research found that 32 per cent of members found setting up and running their SMSF to be more costly than expected, and 38 per cent found running their fund to be more time consuming than expected[1].

Additional findings that highlight the lack of understanding consumers have around their SMSFs and their corresponding legal obligations as SMSF trustees include[2]:

  • 33% of members did not know that an SMSF must have an investment strategy;
  • 30% of members had no arrangements in place for their SMSF if something happened to them;
  • 29% of members thought they were entitled to compensation in the event of theft and fraud involving the SMSF; and
  • 19% of members did not consider their insurance needs when setting up an SMSF.


Adviser advice inadequate when it comes to SMSFs

The research report also reviewed 250 client files where an adviser had provided personal client advice to set up an SMSF. Unfortunately, the results indicated that there were a number of instances where the advice provided was non-compliant, ranging from poor record-keeping and process issues to situations where clients were at risk of significant financial detriment.

It’s a big wake up call for both clients and advisers. Clearly, lots of people are setting up self-managed super funds without knowing whether this is the best option. Also the report highlighted that some advisers aren’t doing a good enough job in this space to support their clients.


What should I do if I am interested in setting up an SMSF?

If you’re interested in setting up an SMSF, you should not be put off by the findings of this report, however, we urge you to seek reputable advice to ensure that an SMSF is the right approach for your finances.

When selecting a financial planner, you need to ask about their credentials and get an overview of their education to ensure they have the right knowledge around SMSFs. Additionally, they should be open-minded in regards to options outside of SMSFs. Actively ask your planner to outline the benefits and risks of SMSFs vs other super investment options to ensure they are the best option for you and your goals for the future.

Related: What is a self-managed super fund and should I have one?


How do I find the right financial planner for advice on SMSFs?

Firstly, don’t be afraid to shop around. Ideally, a relationship with a financial planning professional will be long-term, ensuring you are working towards and achieving goals that benefit you over the course of your life. It is crucial that you feel comfortable with the planner you select, so it can be a good idea to have initial meetings with a few planners to ensure that you are aligned in terms of how you want to approach financial planning, and that you feel like they understand your needs and can provide appropriate advice.

Secondly, ensure they are licensed. You should always look for a financial planner who works for a firm that holds an Australian Financial Services (AFS) License issued by the Australian Securities and Investments Commission (ASIC). If you have any doubts, you can use the ASIC Financial Adviser tool on the MoneySmart website to verify whether the financial planner is licensed.

Finally, ask about their education, qualifications and associations. Make sure your financial planner is properly trained to provide advice, and don’t be afraid to ask about what financial planning qualifications they have achieved. You should also look for a planner who is a member of a professional body, such as the Financial Planning Association (FPA). Members of the FPA must meet stricter criteria and higher standards than currently required by law. You can find a financial planner who is an FPA member, CERTIFIED FINANCIAL PLANNER® professional or an FPA Professional Practice here.

Related: Finding the right financial planner for you

In order to provide advice that will specifically benefit you, your financial planner should spend time asking questions and gathering information to gain an understanding of your current circumstances, your financial habits and your goals in order to develop a personalised financial plan that encompasses all areas of your finances, including the right approach to superannuation. If you encounter a planner who seems overly invested in selling you a particular product, particularly without spending time getting to know you, you should treat that as a red flag that they are not the right adviser for you.


I already have an SMSF, what now?

If you already have an SMSF, remember that you are not locked in to this investment structure. If you do some further research, or seek additional advice, and decide an SMSF is not right for you, there are options for winding up your SMSF and moving your super to a more traditional product, and the ATO provides some general direction on winding up your SMSF.

You should also make sure that you are keeping track of all your superannuation, and taking extra care if you’re self-employed to ensure you’ve got the right super strategy in place.

Still not convinced? Learn more about the true value of financial advice to help understand how a CERTIFIED FINANCIAL PLANNER® professionalcan help you select the right path to reach your financial goals.

 

[1]Pg 8, ASIC, “SMSFs: Improving the quality of advice and member experiences”, June 2018,https://download.asic.gov.au/media/4779820/rep-575-published-28-june-2018.pdf

[2]Pg 8, ASIC, “SMSFs: Improving the quality of advice and member experiences”, June 2018,https://download.asic.gov.au/media/4779820/rep-575-published-28-june-2018.pdf

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