AMP issued a submission to the Australian Securities and Investments Commission (ASIC) earlier this week in response to Consultation Paper 216 – Advice on SMSFs: Specific disclosure requirements and SMSF costs (CP216).
In its response to ASIC’s proposal that advisers must warn clients an SMSF is not entitled to compensation under Part 23 of the SIS Act for loss suffered as a result of fraud or theft, AMP suggested producing a regulatory guide rather than modifying the law.
“We think a regulatory guide that provides guidance on the appropriate disclosure of the compensation rights of SMSFs versus APRA-regulated funds, and the scenarios that may justify specific disclosures about a particular investment or investment product not being covered by compensation arrangements, is an appropriate regulatory response,” the submission stated.
CP216 also proposed that when recommending an SMSF, an adviser’s statement of advice (SOA) should contain specific disclosures about the responsibilities of a trustee and the commitment required to operate an SMSF.
However, AMP stated it may be “more efficient and effective” for the generic disclosure items listed in the consultation paper to be provided as a standalone document, leaving the SOA to deal with client-specific issues.
“Most of the items listed is factual information and, at best, general advice about the costs and implications of setting up an SMSF,” the submission stated.
“Rather than each licensee developing their own commentary on these issues, ASIC and the ATO in conjunction with [industry bodies] could develop a user-friendly publication or booklet that must be provided to clients up front.
“In practice, many advisers already disclose the items listed in the consultation paper in that manner. That is, generic information is provided to the client by providing access to ATO support material, and disclosures that are more client specific are included in the SOA.
“Therefore, rather than modifying the law to require the mandatory disclosure of those items, we think a regulatory guide that provides guidance on the appropriate disclosure of the benefits, risks and costs of setting up and running an SMSF specific to the client’s circumstance, would be an appropriate regulatory response.”
AMP also addressed Rice Warner’s findings on the costs of operating an SMSF, which were included in the consultation paper, saying the sample size represented in the fee tables is unclear in the report.
“There are a large number of firms who provide SMSF administration services, and the services they provide and the way they charge for those services varies greatly. This fragmentation makes it difficult to draw meaningful conclusions about the costs of operating an SMSF, particularly if the sample size is based on a narrow cross section of funds,” it stated.
“We think the publication of points at which an SMSF becomes cost effective compared with an APRA-regulated fund, serves no meaningful purpose for clients and is likely to mislead clients into thinking an SMSF is less or more expensive than their current fund.”
AMP has also stated a 12-month transition period for any changes would be “more appropriate” than the corporate regulator’s suggestion of six months.
