Chapter 5 - Providing SMSF Advice
SMSFs can provide flexibility and control, but they also carry higher risk and responsibility.
This lesson highlights the key considerations advisers must assess before recommending an SMSF, focusing on suitability, risk, and regulatory expectations.
Self-Managed Super Funds (SMSFs) continue to attract strong interest from clients seeking greater flexibility, transparency, or involvement in their retirement planning. However, SMSFs also remain one of the highest-risk advice areas across the financial advice profession.
ASIC has made it clear through multiple regulatory reviews — most notably REP 824 — that poor SMSF advice remains a key area of concern. As a result, Insight Investment Partners has implemented a robust SMSF Policy designed to protect clients, advisers, and the licensee.
This article outlines the key principles of the policy and what advisers must consider before recommending an SMSF.
SMSFs Are Not for Everyone
While SMSFs can offer increased control and flexibility, they are
not suitable for all clients and are never a “set-and-forget” solution.
Clients who establish an SMSF take on significant responsibilities, including:
Ongoing compliance with superannuation, taxation, and trust law
Responsibility for investment decisions
Oversight of administration, audits, and reporting
Ensuring the fund can meet benefit payments and expenses
Importantly, clients moving from an APRA-regulated superannuation fund into an SMSF also give up protections such as access to AFCA in relation to fund complaints.
For these reasons, SMSF advice must be supported by strong professional judgement, not client preference alone.
SMSF Is a Strategy —
Not a Goal
A recurring theme in ASIC enforcement action is advisers treating SMSF establishment as the client’s goal.
It is not.
An SMSF is a potential solution to a client’s underlying objectives — such as retirement income flexibility, estate planning efficiency, or investment structuring — but it is never the objective itself.
Where a client says they “want an SMSF”, advisers are required to explore:
Why the client believes an SMSF is appropriate
What outcome they are trying to achieve
Whether that outcome could be met through alternative structures
Acting purely on client instruction without investigation is considered order-taking, which is inconsistent with the Best Interests Duty and the Financial Planners and Advisers Code of Ethics.
High-Risk Indicators
to Be Aware Of
ASIC has identified several indicators that elevate SMSF risk, including:
Low starting balances
Clients nearing retirement or already retired
Clients with limited financial literacy
Heavy exposure to direct property or illiquid assets
Advice models linked to property referrals or conflicts of interest
Where these indicators are present, advisers should expect heightened scrutiny and must ensure their advice documentation clearly demonstrates:
Why an SMSF is appropriate
How risks are mitigated
Why the client is expected to be in a better position
Balance Thresholds Matter
The cost of running an SMSF is often underestimated by clients.
For this reason, the policy sets clear expectations around fund size:
SMSFs with very low balances are not appropriate
Where balances are lower, advisers must clearly demonstrate how the benefits outweigh the additional costs and risks
SMSF recommendations must always include a clear comparison between the client’s existing superannuation arrangement and the proposed SMSF, including:
Establishment costs
Ongoing administration and audit fees
Investment costs
Insurance implications
Features and protections gained and lost
Comparing the Existing Super Fund Is Mandatory
When recommending an SMSF, advisers must compare the proposed SMSF against the client’s existing fund.
This comparison must be clear, practical, and client-focused, addressing:
One-off costs (exit fees, CGT, establishment and wind-up costs)
Ongoing costs
Insurance differences
Loss of APRA protections
Long-term implications
Clients must be able to understand, in simple terms, the consequences of acting on the advice.
Investment Advice and Concentration Risk
Concentration risk is one of the most significant issues in SMSF advice.
Where a large proportion of the fund is invested in a single asset — such as direct property or a small number of investments — the risks can include:
Reduced diversification
Liquidity constraints
Difficulty meeting pension payments or expenses
Increased volatility
Advisers must ensure that:
The SMSF investment strategy explicitly addresses concentration risk
Asset allocation ranges promote diversification
The Statement of Advice explains the risks and consequences
Liquidity and cash flow are appropriately considered
Investment advice must align with:
Each member’s risk profile
The SMSF’s investment strategy
The members’ needs and objectives
Gearing and LRBA Advice Requires Extra Care
Advice involving borrowing inside an SMSF carries significantly higher risk and requires additional safeguards.
Before providing LRBA advice, advisers must ensure:
Appropriate approval has been obtained
Cash flow can comfortably support repayments
Stress testing is completed (including interest rate increases)
All costs are clearly disclosed
The investment strategy permits gearing
Where property is involved, advisers must also address:
Illiquidity risks
Concentration risk
Insurance considerations
The long-term sustainability of the strategy
Importantly, advisers must not provide credit assistance and must strictly adhere to approved gearing parameters.
Insurance Considerations Must Not Be Overlooked
SMSF strategies can materially change a client’s insurance position.
Advisers must consider:
Whether existing cover in an APRA fund should be retained
The affordability of insurance premiums inside the SMSF
How premiums will be funded over time
Whether additional insurance is required due to gearing or illiquid assets
Cancelling and reissuing insurance policies to move ownership into an SMSF is treated as product replacement and must meet all relevant policy requirements.
Clear Boundaries Between Advice and Other Services
While advisers may work closely with accountants and other professionals, it is critical to understand what is — and is not — permitted under the AFSL.
Under the policy:
Financial planning advice may be provided under the licence
Accounting, legal, administration, and compliance services are not permitted under the AFSL
Referral arrangements must be disclosed
Conflicts of interest must be actively managed
Where advisers operate in multiple professional capacities, services must be clearly separated and transparently documented.
The Role of
Professional Judgement
Ultimately, SMSF advice requires advisers to exercise professional judgement — not simply facilitate a transaction.
Before recommending an SMSF, advisers must be satisfied that:
The client understands trustee responsibilities
The client has the time, skills, and interest to manage the fund
The strategy aligns with retirement objectives
The client is expected to be in a better position
If an SMSF or its proposed investments expose the client to unnecessary or inappropriate risk, the recommendation must not proceed — even if the client insists.
Final Thoughts
SMSFs can be an effective strategy for the right client, in the right circumstances, with the right level of advice.
The SMSF Policy exists to ensure that:
Clients receive high-quality, well-reasoned advice
Advisers are protected through strong documentation and professional judgement
Insight Investment Partners meets its regulatory obligations
When applied correctly, the policy supports better client outcomes and strengthens trust in the advice profession.
If you are ever uncertain whether an SMSF strategy is appropriate, engage early with your Compliance Manager. Early discussion and documentation are key to managing risk and delivering quality advice.