Disclosure requirements for SMSFs

Having explained why they are financial products, David Court now examines the manner in which the disclosure requirements apply to SMSFs.

Part one of this article showed why a self-managed superannuation fund (SMSF) is a financial product and the licensing implications that flow from having that status.

Part two examines the manner in which the disclosure requirements apply to SMSFs.

While trustees are excluded from a number of these requirements, the exclusions are not 'blanket exemptions' and contain a number of potential traps.

Disclosure to new members

Generally, a new member of a superannuation fund is required to be given a product disclosure statement (PDS) for the product.

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However, a PDS is not required for an SMSF if the trustee believes on reasonable grounds that the member has received or has (and knows that they have) access to all of the information that the PDS would be required to contain.

While this rule appears to allow an SMSF to dispense with a PDS, it actually puts the trustee in a difficult position.

In order to take advantage of the rule the trustee would need first to ascertain exactly what information would have been required to be included in a PDS for the SMSF.

They then have to make sure the member either has received that information or has access to that information and knows that they have access to it.

If the SMSF does issue a PDS then the normal content rules apply. However, no 'in-use' notification to the Australian Securities and Investments Commission is required.

Periodic disclosure

The trustee of an SMSF must provide periodical information to members annually and when a member joins or leaves the fund.

However, a periodic statement need not be given if the trustee has already given the member all the information that would be included in the statement if it were to be given.

As all members of an SMSF will be a trustee (or a director of a corporate trustee) of the SMSF, it might be thought that such information is available to the member and need not be supplied.

However, the information must have been "already given" to the member which implies some positive act by the trustee and knowledge by the trustee of what information would have been required to be given.

The information required to be provided is the information that the trustee reasonably believes the member "needs to understand his or her investment" in the SMSF.

In addition, certain specific information (such as account balances and investment returns) must be included.

Disclosure upon request

The trustee of an SMSF must provide information to certain 'concerned persons' and employer sponsors upon request.  

A concerned person is one who is (or was within the previous 12 months) a member or a beneficiary of the fund (for example, the recipient of a death benefit following the death of a member).

Information must be supplied which a person reasonably requires for the purpose of understanding matters such as benefit entitlements and the management, financial condition and investment performance of the fund.

Disclosure upon the occurrence of certain events

The trustee of an SMSF must provide information to members upon the occurrence of material changes and significant events.

Essentially, the trustee must provide to a member such information as is reasonably necessary for the member to understand the nature and the effect of the change or event.

However, notification is only required in relation to material changes to a matter that would have been required to be specified in a PDS. 

Disclosure upon ceasing to be a member

The trustee of an SMSF must provide information to members (or, in the case of death, their beneficiaries) upon ceasing to be a member of the fund.

The information disclosure is essentially the same as the periodic statement required to be given to members.  

However, those obligations are modified slightly (where the member has died) to ensure that the information is provided to each person receiving a benefit as a result of the member's death.  

Effect of breaching the disclosure obligations

The general prohibitions in relation to making false or misleading statements or engaging in dishonest, misleading or deceptive conduct apply to SMSF trustees in the same manner as the trustees of other types of superannuation funds.

The Corporations legislation contains a wide range of penalties - both civil and criminal - in relation to breaches of the legislation.  

Of more immediate concern to trustees of SMSFs will be the fact that the fund's complying status for taxation purposes can be lost due to a contravention of the obligations under the Corporations legislation. 

The trustee's approach to the disclosure obligations

As can be seen, there is no general exclusion for SMSFs from the superannuation fund disclosure obligations under the Corporations legislation.  

While it is true the obligations are less than for other types of superannuation funds, the main 'exclusion' for SMSFs relates to the form of disclosure rather than the content.

In this regard, the trustee is exempted from a formal disclosure obligation on the basis that the trustee considers that the member has already received the information by some other means. 

Rather than reducing the burden on the trustee, this actually puts the trustee in the position of first having to know what information is required to be disclosed and then having to ascertain whether the member already has already received that information.

In such a situation, the trustee might consider that simply complying with the formal requirements is the more prudent course of action.

David Court is a lawyer at Holley Nethercote Commercial Lawyers.