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Unexpected disclosure news for self-managed super funds

OSTENSIBLY designed to protect investors, the Financial Services Reform legislative package contains some requirements aimed squarely at those it sets out to assist.

Under the legislation, which came into effect in March, Australia’s 250,000 self-managed superannuation funds and their 400,000 individual stakeholders are required to formulate and issue a product disclosure statement to their member-trustees each time a decision is made to invest in a new product.

By law, self-managed super funds cannot have more than four members and each member must be either a trustee or, if the trustee is a corporation, a director of the trustee. Yet for the benefit of the four members, a product disclosure statement must be issued.

In WA, around 24,000 funds with a pool of almost $9 billion in funds will be hit, while around Australia the onus will fall on 18 per cent of all super fund assets, or $93.5 billion.

While it is understood a two-year concession has been provided to existing funds before they will be called to account, any funds created since March 11 have a requirement to abide by the new laws.

FlexiPlan Australia Ltd legal counsel Andrew Taylor picked up on the anomaly in a recent address to the Law Society of Western Australia.

“This is unnecessary and unlikely to be of any use to members,” Mr Taylor said.

“It seems a disproportionate cost for the trustee to prepare a PDS for such a small fund.

“In such circumstances it seems ridiculous for the trustee or trustees of an SMSF to issue a PDS.”

Self-managed super funds are popularly used by small businesses, married couples and family groups, as they provide more investment flexibility than off-the-shelf super funds.

Mr Taylor said while some exceptions were allowed for securities and managed investment products, normally requiring a product disclosure statement, this was not the case with superannuation interests.

“The futility of a product disclosure statement for self-managed super funds is exacerbated by the fact that self-managed super funds are exempt from the requirement that a product disclosure document be given to the member before issue of the product,” Mr Taylor said.

“The product disclosure statement can be given up to three months after issue.

“Despite this, members in self-managed super funds do not have cooling-off rights.

“So even if a PDS for an SMSF did contain material information of which the member was not aware and which would have dissuaded the member from joining the fund, it would be too late for the member to do anything about it.”

While the ramifications could be wide reaching if the government regulators stick to the letter of the law, Mr Taylor believes it is unlikely to be of major concern for investors.

“This is not an issue of great significance to most licensed product issuers but may be relevant to investment advisers and to licensees who provide administration services to self managed funds,” he said.

“I suspect that most self-managed fund trustees and their advisers will ignore the product disclosure statement provisions altogether.”

Taxpayer Australia technical director Barbara Smith told WA Business News it was the first time that the anomaly had been brought to her attention, but that she was appalled by the extra impost it placed on superannuation.

“I think it’s totally ridiculous. On face value it just doesn’t seem sensible at all,” Ms Smith said.

“We think that the Australian Securities and Investment Com-mission should be required to spell out the reasons for the rationale of why self-managed super funds should be required to provide a product disclosure statement.

“Whoever wrote this legislation doesn’t have a clue. It’s forcing people to do something that is ridiculous.”

One point on which self-managed superannuation fund members are likely to benefit from these requirements is if they made use of an independent trustee such as Perpetual to take care of their super on their behalf.

ASIC financial services director Pauline Vamos said it was not up to the commission to make any changes to the law, as its role extended only to enforcing any legislation and making recommendations for changes.

She said relief could be exercised by ASIC only under certain exceptional circumstances and it was still too early to make an assessment on the legislation because it was to early to tell if the requirements were working effectively or not.

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