The committee’s report points to the likely beneficiaries of this bill, which is well understood. However, Labor Senators’ are concerned that one of the biggest beneficiaries of this bill has often not worked in the interest of fund members, namely a number of poor-quality financial advisers.
Professor Susan Thorp confirms that financial advisers stand to gain from this change:
“To the extent that raising the maximum members allows more, larger SMSFs, financial advisers are likely to benefit from, and favour, the change.”
Labor Senators are concerned that this legislation could bring about greater perverse outcomes for members of SMSFs through poor financial advice, this was highlighted by the ACTU:
“Any expansion of the SMSF operating powers could provide further opportunity for poor financial advice and more profits for banks and for-profit superannuation fund providers. The Hayne Royal Commission showed reprehensible conduct from for-profit providers including conflicted remuneration, exorbitant fees, poor performance, fees for no service and charging fees to the dead. Countless retirees and workers are now facing a worse retirement due to the profit seeking and the self-interest of for-profit funds.”
This is a view supported by Super Consumers Australia who stated:
“we don’t believe the Treasury Laws Amendment (Self Managed Superannuation Funds) Bill 2000…will make a meaningful contribution to delivering better member outcomes in an environment where barriers to accessing un-conflicted financial advice persist.”
“In reality, conflicts in the financial advice market persist. We are concerned that the Bill may increase the potential for advisors to recommend SMSFs to people (or ‘up-sell’ to existing members of SMSFs) when it is not in their best interests, leaving them substantially more vulnerable to poor outcomes, particularly in the absence of the prudential safeguards that apply to MySuper and Choice funds. The Productivity Commission agreed, finding that there may be ‘incentives for advisers to recommend setting up SMSFs to clients based on potential ongoing fee revenue to the adviser rather than because it is in the client’s best interests.’ Expanding SMSF membership capacity may increase this incentive (eg. adviser suggests adding existing member’s children to SMSF), especially given that SMSF owners are already major users of advice services.”
Evidence provided to the committee showed 2018 research from ASIC that financial advice had been overwhelmingly not in the best interest of client’s or did not comply with the requirement that advice be appropriate. Labor Senators understand that risk cannot be eliminated from all financial decision making, however there is a path to strengthening the safeguards in place, as Super Consumers Australia point out there are Productivity Commission recommendations that are on the table which government should act on:
require specialist training for people providing advice to set up an SMSF
require people providing advice to set up an SMSF to give prospective SMSF trustees a document, prepared by ASIC, outlining ‘red flags’ prior to establishment, and
extend the proposed product design and distribution obligations to SMSF establishment.
In light of the evidence Labor Senators’ make a number of recommendations:
The Senate should oppose the bill’s passage.
The government should proceed with Commissioner Hayne’s recommendation that there be a review of measures that have been implemented by the government, regulators and financial services entities to improve the quality of financial advice.
The government should consider adopting the reforms recommended by the Productivity Commission to create stronger safeguards on SMSF advice should be fully implemented. More broadly, systemic reform is needed to ensure people have access to independent advice.
The government provide further advice on the financial and compliance costs of implementing this reform, including for individual members, SMSF advisers, and regulators.
Given the potential for increased conflict in the effective governance of SMSFs by trustees, especially if they are family members, the government should ensure a minimum standard of protections are in place for each member of the SMSF, especially with regard to mandatory education and dispute resolution to balance the interests of the increase in the numbers of trustees and members.
That if passed, the bill should be subject to a statutory review at 12 months, with particular consideration of the conduct of financial advisers and trustees, and SMSF investment performance and governance.
Senator Alex GallacherSenator Jenny McAllister
Deputy ChairSenator for New South Wales