ASIC increases regulation and pushes $200 000 as SMSF minimum

The Australian Securities and Investments Commission (ASIC) is increasing financial planning regulation and pushing a $200, 000 SMSF minimum. ASIC Deputy Chairman Peter Kell said ‘ASIC wants to ensure that only those investors for whom an SMSF is suitable are advised to establish an SMSF and that our expectations around the standards of advice are clear.’

On July 23 the ASIC released two information sheets to improve the quality of advice provided by advisers on self-managed superannuation funds (SMSFs).The information sheets are:

Information Sheet 205 Advice on self-managed superannuation funds: Disclosure of risks (INFO 205) and Information Sheet 206 Advice on self-managed superannuation funds: Disclosure of costs (INFO 206).

In short, the ASIC information sheets reports warn SMSF clients to have a starting balance of $200,000 – one below that threshold is more likely to be scrutinised by the ASIC.

Increased regulation does have it downsides. Financial advisors’ fees may rise if they feel the extra documentation prepared for strict regulation may increase their costs of advising clients. Also, increased costs could result in ill-equipped SMSF investors setting up their own SMSF without seeking professional advice.

For your information, here are 10 rules your financial adviser must follow.

1. Ideally self-managed funds should have more than $200,000. ASIC will take a dim view on funds with less than that, where the costs and risks of doing so are not properly explained.
2. Costs of establishment, operating and winding up must be properly laid out. The regulator will “look more closely” at any recommendations that don’t do so.
3. Advisers should re-assess on an ongoing basis whether the fund continues to be suitable for a client.
4. Investors must be warned they have no access to statutory compensation in the event of theft or fraud.
5. Clients will not be able to gain access to certain dispute resolution mechanisms.
6. Advisers must consider carefully the appropriate governance structure of a fund.
7. The time, skills and obligations associated with running a self-managed superannuation fund must be explained.
8. Advisers must ensure clients have an appropriate investment strategy.
9. Self-managed super fund clients must be made aware of the mechanism and costs of winding up their SMSF.
10. Any advice to switch to an SMSF must clearly set out considerations, in addition to the costs, relevant to setting up, operating and winding up a self-managed fund.