What are the rules for Financial Planners giving SMSF Advice?

It is not a legal requirement to obtain advice from a licensed financial planner when setting up a self-managed superannuation fund (SMSF) or obtain financial advice in relation to the fund’s investments or strategic planning in relation to the members retirement. However, unless you have the skills and expertise to do this yourself it is certainly conventional wisdom to do so.

An SMSF is a financial product and therefore giving advice in relation to a financial product is regulated by the Australian Securities and Investments Commission (ASIC). A financial planner must obtain an Australian Financial Services (AFS) license or otherwise be a representative of a AFS licensee. ASIC assess applications for an AFS license and monitors compliance with the ethical, independence, educational and training requirements of an AFS licensee and has a register you can check.

An accountant can provide accounting services including execution only SMSF setup services to an SMSF under regulation 7.1.29 (5).

What advice can’t an accountant provide in relation to an SMSF?

An accountant, without a license, cannot provide advice on the following:

• Whether or not setting up an SMSF is right for you
• Whether or not winding up an SMSF is right for you
• acquisition or disposal of investments held by an SMSF such as debentures, general and life insurance, managed investments, shares, real property

Hint – the acquisition of real property is not considered a financial product.  However, ASIC have stated that providing advice on using an SMSF to invest in real property is financial product advice and a person must be appropriately licensed to do so.

What SMSF services can an accountant provide without a license?

In accordance with ASIC’s information sheet 216 (INFO 216) an accountant can provide services to an SMSF.

Refer to Table 1 -Accountants providing services to SMSFs

1. “Establishing, operating, structuring or valuing an SMSF, including advice and assistance on administrative and operational issues, and the process of winding up or exiting an SMSF”. A crucial requirement is that an accountant may not advise a client to acquire or dispose of an interest in an SMSF.
2. “Asset allocation and investment strategy”. Advising an SMSF on diversity among different categories of investments is allowed but specific advice on acquiring an investment is not.
3. “Tax advice on SMSFs and other financial products” is exempt provided the accountant does not receive a benefit resulting from the advice and have provided the SMSF with appropriate warnings.
4. “Tax agent and BAS services” generally accountants are also registered tax agents and can provide advice in relation to those services.
5. “Referring clients to an AFS licensee or representative” is allowed and any commissions received must be disclosed.

SMSF Australia made a decision very early on not to become a financial planning firm as well as an accounting firm, so we give no financial planning type advice.  We have made this decision for two reasons:

1. We do not want to compete with financial planners who are some of our best referrers/customers and are experts at the advice side of things.
2. Asking an SMSF Specialist if an SMSF is the right tool for you seems like a massive conflict of interest, far too much so for our tastes! The adage that when you have a hammer everything looks like a nail come to mind, we simply don’t believe that we (or really any of our industry) could ever be truly impartial to give advice in that area.

For more information checkout our publicly available information on what we do/don’t do and why: https://smsfaustralia.com.au/asic-licensing-regime/

Tips for giving self-managed superannuation fund advice

ASIC’s information sheet 274 (INFO 274) provides tips to assist advice providers such as financial planners in meeting their legal obligations when advising a client to transfer their super money from an APRA regulated fund to establish an SMSF.

• The overarching consideration is to act in the best interest of the client. The adviser must act honestly and cannot act fraudulently or deceptively and must be appropriately licensed complying with the Corporations Act 2001, the Financial Planners and Advisers Code of Ethics 2019, the Superannuation Industry (Supervision) Act 1993 (SIS) and ASIC. The client must be warned if the advice provided is based on incomplete or inaccurate advice.
• Use your professional judgement when recommending a client establish an SMSF. Always base your recommendation on “Is an SMSF suitable for your client?”. Does your client have the skills and knowledge to operate an SMSF? Do they understand their responsibilities as a trustee? Is your client vulnerable i.e. elder abuse? Is an SMSF cost-effective vs the client’s current arrangement?
• Your client must fully understand the structure of an SMSF and the risk they are undertaking when changing from an APRA-regulated fund to an SMSF. SMSF trustees are subject to penalties if they do not comply with SIS, ASIC and tax laws. APRA funds have legal protections and processes to deal with theft and fraud. There is no separation between the trustees and the members of an SMSF and unlike APRA funds they are not eligible for government compensation afforded under SIS. An SMSF has recourse to compensation through Financial Complaints Authority (AFCA) but it is limited to complaints about third-party financial firms and AFS licensees.
• Costs of establishing, operating and winding up an SMSF must be fully discussed and disclosed and explain what the cost-benefit or potential loss is when replacing an existing APRA fund with an SMSF. Insurance should be considered closely when changing over.
• Consider if the trustee should be individuals, a sole purpose company or an existing company and what are the costs, benefits and associated risks. The client has to understand what the investment strategy is and how it provides a plan to build wealth for the members retirement and the consequences under SIS if they don’t or do not regularly review it. Insurance arrangements should be considered and reviewed regularly. Like most strategic planning the end must always be considered in relation to future unexpected events such as a death of a member, trustee disputes, going overseas for extended period or the fund becomes economically unviable.
• Consider the need for ongoing financial advice and having other super fund professionals such as an accountant, auditor and a tax agent involved in the ongoing management of the SMSF.

 

Type of Service or Advice	Accountant	Financial Planner
Contributions to an SMSF	Advise on the tax implications and client eligibility to make contributions i.e. use of the carry-forward unused concessional contributions cap and the bring forward non-concessional cap	Recommend a specific type and amount of contributions be made to an SMSF
Accumulation vs pension phase	A registered tax agent can advise on the tax implications of transferring from accumulation phase to retirement phase provided they also advise the client that tax is not the sole consideration	Provide strategic advice about retiring and when to establish a pension
Transfer of Assets	A registered tax agent can advise the client on the tax implications of transferring assets but cannot recommend specific assets to be transferred	Advise the client about transferring assets to or from the SMSF and the specific assets to be transferred
Rollover member benefits	Assist the SMSF trustee with the process to rollover member benefits to or from another fund	Advise the client to rollover benefits to another super fund or from another super fund and the amount to rollover and help select an appropriate fund for the client
Establish an SMSF	Assist with setting up an SMSF after the client has received advice or done their own research and decided this is what they want to do including: ·         obtaining a trust deed and associated trustee minutes ·         add members and trustees ·         provide a template for an investment strategy which must be prepared by the trustee ·         organising a corporate trustee and appointing directors and shareholders and associated minutes ·         registering the SMSF with the ATO and obtaining an ABN and a TFN ·         organise rollovers from other funds as requested by the members	Advising a client to establish an SMSF after considering whether an SMSF is suitable. This includes ensuring the client understands: ·         The risks of an SMSF vs an Apra regulated fund i.e. industry or retail superannuation fund ·         Costs considerations ·         Suitable trustee structure ·         Investment Strategy ·         Ongoing financial advice ·         Insurance arrangements ·         Exit strategy
Add new members or remove members	Assist with the appropriate paperwork in relation to adding new members or removing members	Recommend adding or removing a specific member from the SMSF
Resign and appoint trustee/s	Assist with the appropriate paperwork to resign and appoint a trustee and also organise a corporate trustee and the appointment and resignation of the directors	Recommend changing a trustee from individuals to a corporate trustee or to resign or appoint a new trustee
Member benefits	Advise the steps required to pay member benefits and assist the trustee with the required paperwork	Recommend establishing pensions and paying lump sum benefits
Winding up an SMSF	Advise the steps required to windup an SMSF and assist with the paperwork and final accounts to do this	Recommend winding up an SMSF and paying out benefits or transferring benefits to another super fund