If financial advice is provided to an SMSF it is important that the adviser consider both the personal circumstances of the members and of the fund itself, the ombudsman has ruled.
A husband and wife, both directors of a self-managed super fund corporate trustee and also the members of the fund, visited a financial planner at FinancialLink Group in March 2018. They went with their accountant.
One of the directors was approaching retirement preservation age.
According to their account, at that meeting, the adviser influenced then to invest in a hedge fund. In May the adviser presented a statement of advice (SoA) for the SMSF.
The directors went to Australian Financial Complaints Authority (AFCA) seeking a refund of more than $215,000 they invested in the hedge fund, plus interest and costs. They complained that the advice given at the March meeting and in the SoA was inappropriate and not in the SMSF’s best interests.
FinancialLink responded that the adviser did not provide personal advice, but rather general advice, at the March meeting where the hedge fund was discussed. It said the advice in the SoA was appropriate.
The directors and their accountant all provided notes detailing their recollections of what occurred at the meeting. The directors’ note details the adviser’s explanation of the features of the hedge fund investment but does not include an explanation of its risks. The accountant’s letter was along similar lines.
According to the accountant, the adviser introduced himself as knowledgeable and experienced in the industry, that he had invested in the hedge fund and demonstrated the performance of the fund.
The adviser did not provide a file note of the meeting in spite of obligations to maintain records.
In the absence of any file note supplied by the adviser, AFCA accepted that the adviser’s discussion influenced the directors to invest in the hedge fund.
It found that if the advice was personal, there was no SoA. If the advice was general, there was no general advice warning that the advice had been prepared without taking account of the client’s financial objectives, needs and situation. “The firm did not meet either obligation,” AFCA says.
AFCA accepted that the adviser failed to outline the risks, which meant the directors were not informed of the risks associated with making the hedge fund investment.
AFCA accepted that the adviser did not make it clear to the complainant that he did not take into account personal circumstances when influencing the directors to invest in the hedge fund. Nor did he explain why the hedge fund was not recommended or approved by his firm.
It found that the adviser breached his obligations.
AFCA says that if advice is provided for an SMSF it is important that the adviser considers both the personal circumstances of the members of the fund and the fund itself. This means that the adviser should obtain a copy of the fund’s investment strategy.
Advisers must provide an incomplete advice warning, where it is appropriate. The warning states that the advice is or may be based on incomplete or inaccurate information relating to the client’s relevant circumstances.
The adviser did not provide adequate warnings in the May SoA as to why the hedge fund was not a recommended investment.
“The failure to provide such a warning means that the complainant had a reasonable expectation that a review of the appropriateness of the investment in the hedge fund was included in the advice,” the ombudsman says.
In the end, AFCA did not order any compensation because FinancialLink had already offered to redeem the investment with a full return of capital plus interest, which the directors declined.