Regulation called for to oversee SMSFs
The Australian Securities and Investments Commission and the new Coalition government need to seriously consider bringing property spruikers who recommend self-managed super funds inside the licensing net. The chief executive of the Association of Superannuation Funds of Australia, Pauline Vamos, is calling for property spruikers who make the link between real estate and self-managed funds to have an Australian Financial Services Licence or work under the supervision of a licence holder. She says it would enhance consumer protection, and she is right.
As it stands, anyone can run a seminar and spruik property and the tax benefits of holding the property inside a self-managed fund. To steer clear of the law, all they have to say is that they are not licensed to give financial advice. A particularly worrying part of the typical spiel is that spruikers are suggesting people borrow to make the property investment.
The superannuation rules were changed in 2007 so that self-managed funds could borrow to buy real estate. Before then, only property that was owned outright could be held in self-managed funds. Real estate operators are paying incentives to financial planners and accountants to recommend property to their clients. Administrators, who set up and take care of the accounting and legal side of running a self-managed superannuation fund, are promoting the benefits heavily.
The Association of Superannuation Funds of Australia's stand comes after revelations that spruikers are offering incentives such as luxury holidays to hold real estate in their self-managed funds. Any person giving advice about a financial product is required to hold an Australian Financial Services Licence. Under the licence conditions, they are required to give advice that is appropriate for their client.
"[The Association] considers that such requirements should extend to those who are marketing residential and other property to those with a self-managed superannuation fund or who, as part of their marketing, suggest that individuals establish a self-managed superannuation fund to purchase a property."
While holding property inside a fund can be an astute move, there are a number of risks that investors need to understand. Vamos says it is essential that consumers have adequate protection, so that they can be confident they are receiving quality advice.
"For some time now [the Association] has been concerned about the growing number of people being targeted by schemes which offer attractive incentives up front at the expense of good retirement outcomes down the track," Vamos says.
"With more and more people entering the self-managed superannuation fund sector each day, it's critical the regulators address the growing concern the community has around its governance, and ensure professionals working in this area are licensed appropriately."
Watch Money's John Collett and Clancy Yeates discuss the latest personal finance news at theage.com.au/money