Don’t be prescriptive on SMSF warnings, says FSC
Advisers should warn their self-managed superannuation fund (SMSF) clients about the lack of compensation arrangements associated with this type of investment vehicle, but any prescriptive warnings should be avoided, according to the Financial Services Council (FSC).
In its submission to the Australian Securities and Investments Commission's (ASIC's) Consultation Paper 216 — Advice on SMSF: Specific disclosure requirements and SMSF costs — the FSC questioned whether multiple warnings in different formats using different wording on a variety of forms would be useful for the consumer.
The Council had noted the previous Government's proposal for the Australian Taxation Office (ATO) to include additional warnings that SMSF members are not eligible for compensation.
However, the submission questions ASIC's intention to consult on requiring advisers to warn the clients themselves.
"It is neither efficient nor sensible in requiring the client to sign off on the warning twice," the submission, written by FSC's senior policy manager Cecilia Storniolo, read.
The client is to sign off on the ATO Trustee Declaration form acknowledging the warning, it said.
"Further, an adviser has substantially enhanced conduct and disclosure obligations as a result of FOFA that compel [them] to have considered the client's needs and wants and provided advice that was in the best interests of the client, and that in documenting that advice, an adviser would not proceed to implement the advice they have provided the client until the client has understood the advice and authorised the adviser to proceed to implement the advice."
As such, the client will have been warned by the adviser and the client will have signed a document which contains the warning, the FSC said.
The Council is supportive of the adviser warning the client of the fact their prospective SMSF would not be protected by the Superannuation Industry (Supervision) Act compensation scheme.
"We are not supportive of prescriptive warnings nor of any additional and/or separate document (including disclosure inclusion in the Statement of Advice) to be signed by the client to confirm they have understood as being useful tools to aid consumer understanding."
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