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ASIC To Investigate SMSF Advice After Violations Are Uncovered

Self-managed superannuation funds (SMSF) are under the microscope right now in Australia as a recent review showed that a lot of detrimental advice was being given to the trustees of these funds. This was caught when the Australian Securities and Investments Commission (ASIC) reviewed 250 client files and revealed that 90 percent of them had decisions that were not in the best interest of the client, while also failing other legal obligations.

A recent report revealed that the ASIC was concerned about the advice being dished out to get investors to set-up an SMSF purely to invest in property.

This is a rather high-risk strategy and not something that investors would be interested in participating in wholeheartedly. The report pointed out this out and said that it would be detrimental to the clients' financial interest to be part of these funds.

These SMSFs are often offered by one-stop shops that supposedly have all that a client needs to get one set-up and starting to invest in property. This includes accountants, financial advisers, real estate agents, mortgage brokers and developers. Two of these firms – Park Trent Properties Group and Anne Street Partners have been warned by ASIC and are currently being monitored.

In a statement, ASIC said

We are particularly concerned about the operation of one-stop shops because of conflicts of interest and, together with the Australian Tax Office, we will have an increased focus on property one-stop shops in the future. This will include building and sharing data and intelligence, and ASIC taking enforcement action when we see unscrupulous behaviour

Investors Getting Bad Advice

In the past, conflicts of interest by financial planners were resolved by requiring them to act in the best interests of their clients. The plan for investing in property is a good idea but is also risky when it becomes the sole investment. Property investment should be part of a diverse portfolio so that risk is reduced.

Australian Taxation Office

The SMSF review also revealed quite a few other non-compliance violations. Fund managers did not keep records properly and had several process failures that would likely end up in the client losing money. According to the review, ten percent of the cases reviewed showed that the client would probably suffer in their retirement based on the advice received while nineteen percent of the files reviewed showed that there was more risk to these clients as the advice given did not encourage them to diversify their risks.

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