Not best interest to advise SMSF solely due to cost
Just because a self-managed superannuation fund (SMSF) may be cheaper to run it is not always in the best interest of super members, according to BT Financial Group.
BT Financial Group, Neil Sparks said on an SMSF Association’s webinar that if an adviser’s client had over $500,000 an adviser should not start with an SMSF just because it was the cheapest option.
“While we know that people in SMSFs are more engaged with their super, from an adviser perspective we can’t start them with an SMSF just because it is the cheapest option,” Sparks said.
“We have to go back to best interest duty. One of the first safe harbour steps is considering whether making a product recommendation is necessary. We have to have a starting position of what product are you in today? And then let’s do the research on that.
“The initial fact find is so important because if a client is talking about direct property investment, direct shares, structured products that they can’t get into from a retail or industry product, then that’s going to lead to an SMSF outcome.”
Sparks said if the answer was that it made sense to make a financial product recommendation such as an SMSF then the adviser needed to do more research to determine if an alternative product would deliver a better outcome.
“Where are they now? If the answer is that’s going to solve to a client’s needs then we should be recommending a change. So that fact find becomes absolutely vital going forward,” he said.
Sparks noted that clients with a lower balance did not mean an SMSF was not viable.
“As long as the client file demonstrates where the fund is at, how much they are going to be contributing, if it’s time critical because of an investment they are trying to get into, or they know they have an inheritance coming and they are waiting on probate, they can start an SMSF now even though they might not have the funds until six to 12 months,” he said.
“There are a lot of reasons but as long as the adviser is capturing that data in the client file and statement of advice and there’s an aggressive contribution stream and where funds are coming from in the future, when the Australian Securities and Investments Commission [ASIC] reads the file, if it’s a $50,000 SMSF today it won’t matter because they’ll know it will be $200,000, $300,000, $500,000 in the future.
“There’s no reason why an adviser shouldn’t be overly prescriptive in their client file notes by doing that they protect themselves and their clients.”
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