ASIC had released a damning report on self-managed superfunds, branding the advice they give on insurance as “inadequate” or “absent”.
But after reviewing more than 100 pieces of SMSF advice provided to investors, said a particular problem was the “inappropriate” exclusion of insurance from the scope of advice. Other issues were discussing insurance after, and not before, an SMSF had been established; keeping some money in an APRA-regulated fund for insurance purposes without discussing the advantages and disadvantages of this approach; and some small pockets of over-insurance. As a result, the investor was worse off.
Only 0.25% of SMSFs hold insurance coverage, according to ATO. It is thought that this is either because investors hold insurance outside their SMFS or because they do not realise they lost insurance benefits by switching from an APRA-regulated fund to an SMSF one.
ASIC will be taking follow-up regulatory action if the quality of advice is poor, including banning the advisor or taking action against the licensee holder.
“If you identify an investor needs advice on insurance, you must consider and advise the investor on their insurance needs before recommending an SMFS,” ASIC warned. “If you do not have the necessary expertise to provide insurance advice, you should notify the investor and refer the investor to an advice provider who has the expertise to provide the advice.”