SMSF advice tips, beyond having a minimum super balance

By Neil Sparks, National Manager - SMSF strategy, BT

Half a million dollars was once considered the minimum balance threshold that applied when deciding whether an SMSF is suitable for a client. According to ASIC’s previous guidance, an SMSF would only be suitable if the client’s super balance was $500,000 or above.

As interest in SMSFs has heightened among Australians wishing to have greater control over how their retirement savings are invested, and technology such as investment platforms and administration software has made it more efficient to run an SMSF, more and more financial advisers have wondered whether such a threshold should prevail.

In ASIC’s updated information sheet 274 - Tips for giving self-managed superannuation fund advice (INFO 274), the regulator has published some factors which advisers should consider when assessing whether an SMSF would be suitable, and removes the confusion about whether they can recommend the establishment of a new SMSF to clients with less than $500,000 in their super. ASIC’s media release for INFO 274 states that “balance alone is not the driving indicator of suitability.”

Published in December 2022, INFO 274 consolidates and replaces Information Sheet 205 - Advice on self-managed superannuation funds: Disclosure of risks and INFO 206 - Disclosure of costs. Outlined below are some tips for SMSF advisers stemming from the release of INFO 274, within the context of the broader regulatory framework for SMSF advice.

2. Advisers must inform potential trustees/members of the costs and responsibilities of running an SMSF

When completing a cost analysis between a new SMSF and an existing fund, it is important that advisers clearly set out the costs of setting up, operating and winding up an SMSF, identifying both unavoidable costs and optional costs at each stage.

Although an SMSF trustee may outsource their SMSF responsibilities to professional advisers, the trustee is solely responsible for compliance with the fund’s trust deed, as well as superannuation, corporations and taxation laws.

Advisers should identify whether the client has the time, skills, commitment, and experience to meet their trustee responsibilities. It would be beneficial to consider ASIC’s red flag guidance in 19-277MR where it refers to ‘red flag’ indicators identified in Report 575 that suggest when an SMSF may not be appropriate. Factors to consider include whether there are any signs of the trustee having low financial literacy, cognitive impairment, accessibility constraints or whether they are subject to coercion or elder abuse.

4. Advisers need to educate clients about the development and implementation of the fund’s investment strategy

Advisers should ensure clients understand the requirement and purpose of the SMSF’s investment strategy, which provides the basis for the SMSF’s investment decisions and how members intend to increase their retirement benefits. Among other things, advisers must be satisfied that their client understands the investment strategy must be reviewed regularly, and they must consider whether to hold insurance cover for members.

Diversification can be misunderstood by clients, particularly those who may have a fixed view on the benefits of holding certain assets; for example, property. It’s an opportunity for advisers to explain the risks, possible returns – or not – and liquidity of fund assets.