Insurance will be one of a number of disclosure requirements for advisers dealing with self-managed superannuation fund clients, under a new proposal from the Australian Securities and Investments Commission.
The recommendations are contained within Consultation Paper 216, which proposes that specific disclosure obligations are imposed on advisers dealing with SMSF clients.
The regulator said it was critical that advisers discuss insurance issues with SMSF clients because this may influence their decision to establish or switch to an SMSF. These issues include the potential loss of benefits as a result of switching from an APRA-regulated fund to an SMSF, and whether it is appropriate to take out separate cover for all members.
Under new regulations introduced in August 2012, SMSF trustees are required to consider whether it is appropriate to take out life insurance, including income and total and permanent disability cover, as part of the fund’s investment strategy (see: SMSFs Need Professional Insurance Advice). However, ASIC said it was concerned that advisers are not notifying SMSF trustees of their obligations, and has proposed specific disclosure requirements be imposed on advisers who deal with SMSF clients.
In addition, ASIC is recommending that SMSF investors also be informed of the potentially significant costs associated with setting up an SMSF, including the cost of insurance for members.
One of the concerns expressed by the regulator is that clients who are looking at switching from an APRA-regulated super fund may not be aware that their insurance premium rates are discounted.
‘These rates may be unavailable to members of an SMSF and may mean that each SMSF member needs to be individually assessed for insurance purposes. This may lead to potentially higher premiums, loadings, exclusions or refusals of insurance for investors,’ ASIC said in its consultation paper.
Our recent surveillance of the sector found that advice was not up to a standard we would like
‘Although taking out this insurance will be at an additional cost to the SMSF, the risk of not having appropriate insurance is that it may leave members worse off in retirement.’
ASIC Deputy Chairman, Peter Kell, highlighted the importance of good quality advice for SMSFs given the strong growth of these funds.
“When it comes to planning your retirement, establishing an SMSF is a very significant decision. We want to help ensure that the SMSF sector is healthy, and that investors make informed decisions about SMSFs,” Mr Kell said.
“Our recent surveillance of the sector (see: ASIC Slams Lack of Insurance Advice for SMSFs) found that advice was not up to a standard we would like, so we will continue to work with the industry to ensure investors receive good quality, tailored advice from their accountant or financial planner.”
Click here to view the consultation paper.
Seriously, if we need to point out and legislate for this obvious and basic information to someone then are they really capable of advising on or running a SMSF?
All financial advisers should be doing this disclosure and advice as a standard.
Trustees who don’t get advice will just ignore this anyway and print out a standard minute saying they have considered it and determined it to not be necessary, just as they do a standard investment strategy and then don’t follow it or update it.
I have lots of comments I could make about this (!) but the one that stands out is that the existing replacement product advice requirement within an SoA should have already been taking care of the concerns Peter has expressed here. This again begs a question I’ve asked a lot recently: are licensees failing to mandate, audit and achieve adequate compliance in this replacement product area??
Having said that it would be negligent not to point out to Peter that for a higher premium it’s highly likely the client is purchasing a more comprehensive and ‘safe’ product and it’s tiresome to keep seeing regulators always referencing cheaper premiums as always being in the best interests of clients.
Complying with regulations can be confusing for Trustee’s and what they need is easy to understand help to allow them to make correct decisions.
Most people are time poor and their level of expertise is limited, which leaves them exposed to advice that is inadequate to meet their circumstances.
On the one hand, advisers are under attack for the advise they give, yet direct marketers are effectively left alone to create mayhem.
Sue is right that it is a simplistic argument and a easy one to sell, if the product is cheap, then it must be better. After all, we all want to pay the least for Insurance, which is fine if you never have to claim.
It all comes unstuck and the s–t hits the fan when god forbid, a person needs the policy to pay and then finds it won’t, or does not fulfill it’s purpose due to insufficient questions having been asked around needs.
Ultimately, we all need help at some time. The trick is finding the person who can provide what we need in a effective manner.
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