‘McSuper’ Funds Encourage Financial Planners to Push Investors into SMSFs
By Peter Sarmas on 5 Sep 2013
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A boom in property sales for self-managed superfunds (SMSFs) is spawning a new generation of intermediaries offering pre-packaged legal, insurance and referral services, which some industry experts say could put investors into financial hardship.
“I would urge clients and advisers to exercise extreme caution,” Neil Kendall, Financial Rescue managing director told the Australian Financial Review. He likened these packaged services to a one size-fits-all McSuper fund with a high-risk and expensive strategy.
“This is a pre-packaged solution that doesn’t take into account client circumstances. It’s an expensive solution and it encourages people with relatively low assets to use it only in their super fund – to go out and borrow money that they may not be able to afford.”
Adding to the concern, financial advisors are being tempted by these ‘McSuper funds’ with lucrative commissions of more than $12,000 if they put their clients in a SMSF property investment.
Mr Kendall said SMSFs currently fall outside the general regulation that applies to mortgage brokers and financial planners. The new Future of Financial Advice (FoFA) reforms, effective July 1, do not apply to commissions from lenders or general insurers to financial planners; nor do not they cover mortgages.
Mr Kendall said SMSF property purchases are a growing area of concern because a lot of people could be getting their fingers burned where they do not understand the risk. “Financial planners are required to provide advice that’s appropriate to the client – not to take packages and sell them to clients. Certainly something needs to be done to tighten that up.”
A case in point is the example mentioned by the AFR, where financial planners are receiving $5,725 for recommending clients to Sydney-based, SMSF intermediary SuperShift.
Thor McDowell, a shareholder of SuperShift, justified the commission structure saying, “A lot of financial advisers have not up skilled to give financial advice on self-managed super. They want to get into this space but think it is too hard, or are afraid of the regulation. We have approached it in a very compliant manner.”
SuperShift arranges the loan and insurance, does the paperwork, collates the legalities and offers ongoing administrative and legal service. “It is not expensive for the client once you take up every single process or component,” explained Mr McDowell. “It would be more expensive for a consumer to go to multiple professionals.”
Investors are urged to seek impartial advice from multiple parties before signing up for a self-managed fund.
The information or opinions contained in the commentary are general in nature and should not be construed as investment advice or financial product advice. Any research or analysis contained within the commentary is specific to the execution of a purchase brief provided by a licensed adviser. Peter Sarmas is not licensed to provide advice on regulated financial products and the information should not be relied upon to in determining the appropriateness of SMSF property purchases.
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