ASIC Proposals for Specific SMSF Disclosure

ASIC has released a consultation paper on SMSF disclosure which has generated some reaction amongst advisers.  ASIC proposes that SMSF advisers be required to provide additional disclosure when they recommend that a client establish an SMSF, contribute to an SMSF, or transfer existing balances to an SMSF.  The common theme of the additional disclosure is that the particular risks of SMSFs compared to super entities must be disclosed to SMSF investors.

While the immediate reaction to the disclosure proposals of the consultation paper may be that of more regulation and yet another blow to SMSFs, two points must be noted for a considered view.  The first is that the additional disclosure is, in substance, probably already required under existing disclosure obligations.  The second is that better disclosure can be a means of SMSF advisers differentiating themselves from other SMSF advisers.

ASIC was obligated to consider the quality of SMSF advice by the Parliamentary Inquiry into the collapse of Trio Capital Limited and its associated entities.  The Parliamentary Inquiry found that many SMSF investors were unaware that their investments in their SMSF were not protected against fraud or theft by the investor compensation system of the SIS Act.  This compensation system only applies to APRA regulated super funds.  Additionally, the Parliamentary Inquiry found that many SMSF investors who invested in entities and products of the Trio group were unaware of the risks associated with SMSFs.

The proposals of the consultation paper which, if implemented, would require advisers who give advice recommending the establishment of an SMSF, switching contributions to SMSFs or rolling over existing super balances to an SMSF, to:

•    provide specific SMSF disclosure and
•    give guidance on the costs of an SMSF.

The specific SMSF disclosure will include:

•    the duties and obligations associated with operating an SMSF
•    the risks associated with operating an SMSF
•    the need to develop and implement an appropriate investment strategy for an SMSF
•    the time commitment and skills required to operate an SMSF effectively
•    the need to consider and develop an exit strategy for an SMSF
•    the risk that the laws and policies that affect SMSFs may change.

As to the guidance on costs, this will include the costs associated with establishing an SMSF, with operating an SMSF and with winding up an SMSF.