Planners warned against ‘generalised’ SMSF retainers

Peter Bobbin

The terms of engagement of a planner with a self-managed super fund (SMSF) trustee should be precisely delineated to protect planners from claims for negligence from trustees, according to Argyle Partnership partner and lawyer Peter Bobbin.

Speaking at Tribeca’s 4^th Annual SMSF Conference, Bobbin said “generalised retainers should always be avoided in favour of comprehensive and detailed contracts that stabilise the responsibilities of both the adviser and trustee”.

“At a minimum, retainers should detail service expectations and performance standards, pricing and payment issues, monitoring and review of the outsourced function, reporting obligations and termination provisions,” he said.

“Such detail and prescription may seem to be overkill, but in the context of the significant legal liability advisers assume by virtue of their fiduciary relationship with SMSF clients, it is a basic requirement.

“Indeed, any adviser who fails to address such issues in their retainer documentation must be suspected of lacking the commercial astuteness and wisdom trustees should be seeking in their appointed advisers.”

Bobbin argued that precise retainers are necessary because the engagement of SMSF trustees of professionals and service providers “tends to be reactionary, driven by regulation, task based and poorly understood”, he said.

A prevailing view among SMSF trustees of advisers as discrete service providers “discourages an approach based on trustees establishing relationships with advisers as an integral and entrenched part of the fund’s ongoing operation and management”.

“It is understandably common for trustees to have difficulty separating their role as trustee from their membership of the fund, and it is precisely that conflict that fuels this flawed view of the adviser’s role.”

He added that “part of the problem is, of course, that the regulatory regime fuels this task-based mentality in the context of the engagement of advisers”.

Planners also needed to be “cognisant that the SIS Act [Superannuation Industry (Supervision) Act 1993] allows aggrieved members and beneficiaries to take action against any person involved in contravention of a SIS covenant or any provision of the fund’s rules”.

“It is easy to envisage a circumstance where advisers, whose actions directly or indirectly cause loss to a fund or fund members, are found at least partially liable in respect of that loss,” Bobbin cautioned.

In this context, he advised planners who “create a liaison relationship with another professional to document this with both the client and each other”.

“The document should at least make it clear who is responsible for what, when they are to act, and where the liability falls for any failing.”

This could help to protect the adviser in the event a court finds there has been negligence by one or more of the professional services providers in relation to a SMSF, he said.

It will be a matter for the court to determine how the loss is to be apportioned between those that can be said to be jointly responsible for negligence.

“On the one hand, the benefit of being able to claim partial compensation from another service provider, such as an accountant, solicitor, or broker, could be valuable,” he said.

“On the other hand, a planner may find themself caught up in a claim against another professional with whom they had co-operatively acted in the interest of a client.”