Advice Matters: ASIC Warns of Poor SMSF Practices

Australia’s SMSF sector has grown rapidly. SMSFs now hold almost $1 trillion in assets - about a quarter of the country’s superannuation system. This surge has drawn closer attention from ASIC, [1] which warns that poor advice when setting up SMSFs can have serious consequences for clients’ retirement savings.

In its latest review of SMSF establishment advice, ASIC examined 100 client files of Australian Financial Services licences (AFS licensees) and found that 62 failed to meet their best interests obligations, with 27 cases raising serious concerns about client detriment.

ASIC has published a report,[2] and it highlights a range of common issues, most of which highlight poor advice practices.

This article:

• summarises ASIC’s report, and so explores what good SMSF advice should look like; and
• highlights the licensing considerations relevant to advising on SMSFs.

Why This Matters

If you’re thinking about setting up an SMSF, or advising someone who is, it’s crucial to understand what’s involved. SMSFs offer flexibility and control, but they also come with significant responsibilities. SMSF trustees must comply with superannuation and tax laws, manage investments, and maintain insurance.

Moving from an APRA-regulated fund to an SMSF means losing certain protections, such as access to AFCA dispute resolution and prudential oversight.

In short, SMSFs aren’t for everyone. ASIC’s position emphasises that an SMSF should only be established when it genuinely suits the client’s circumstances. Poor advice about establishing an SMSF doesn’t just harm individuals, it also undermines confidence in the entire superannuation system.

What ASIC Found

The Report highlighted three recurring problems with SMSF advice:

1. (Relying on vague notions of ‘control’): Advisers often recommend SMSFs based on the idea of greater ‘control’, without considering what this actually means for each client.
2. (Acting as ‘order takers’): Many advisers act as order-takers, without conducting a reasonable investigation and assessment of alternative financial products, as well as the client’s objectives and needs.
3. (Conflicts): ASIC found conflicts of interest were common, especially in advice linked to property strategies and referral arrangements. Further, advisers did not give priority to their clients’ interests when such conflicts did arise.

In some of the worst cases reviewed by ASIC, clients faced high-risk investments, lost their insurance cover when they switched to SMSFs, or took on compliance obligations they were ill-equipped to manage.

What Good Advice Looks Like

The Report and ASIC’s guidance for advisers giving SMSF advice,[3] outlines what ASIC considers to be best practice when advising clients in relation to SMSFs, which includes the following:

• (Licensed): The Report proceeded from the assumption that all persons advising clients, held an Australian financial services licence authorising them to provide the relevant financial services.
• (Using professional judgement): Advisers must understand their obligations when advising on SMSFs and use their professional judgement to assess whether an SMSF is suitable for their client.
• (Considering SMSF suitability): ASIC’s guidance identifies a range of ‘suitability factors’ in relation to SMSFs which advisers should assess in relation to their clients.[4] These include the clients’ understanding of the obligations associated with SMSFs, their skill and ability to manage an SMSF, any vulnerabilities the client may have, and how cost-effective an SMSF is compared to the client’s current superannuation arrangements.
• (Clarifying objectives and needs): Clarify the client’s objectives and goals and define what ‘control’ means for that particular client. It is important to remember that sometimes similar benefits can be achieved through other superannuation options.
• (Comparing options and risks in light of objectives): Compare costs and risks, and consider whether an SMSF will better help achieve the client’s objectives than their current superannuation fund.
• (Consider insurance needs): Review and consider their clients’ need for suitable and affordable insurance. ASIC notes that where the SMSF is expected to borrow money to invest in property, this will result in new debt and a relatively illiquid investment, and is likely to introduce new insurance needs that financial advisers must consider.

Thinking About an SMSF?

For Advisers

Before recommending an SMSF, advisers must ensure their advice is robust and client-focused, and should take the following actions:

• Assess suitability thoroughly: consider the client’s time, skills, and willingness to take on trustee responsibilities.
• Explain alternatives: don’t rely on vague notions of ‘control’; show the client how other superannuation options compare to an SMSF.
• Provide a cost–risk comparison: include ongoing compliance costs, potential penalties (including tax costs), and insurance implications.
• Document your reasoning: ASIC expects clear evidence to show that the recommendation was made in the client’s best interests.

For Individuals

An SMSF can offer flexibility and control, but it’s not for everyone. Before deciding on using an SMSF, make sure you:

• Ask your adviser how they assessed your suitability: make sure it’s based on your circumstances, not just a desire for ‘control’.
• Request a clear comparison with your current superannuation fund: understand the associated costs, risks, and benefits.
• Understand your obligations: as a trustee, you are personally responsible for compliance, record-keeping, and maintaining insurance.

AFS Licensing – the limited AFS licence

Licensing was not a focus of the Report, but the Report did proceed from an assumption that any persons advising on SMSFs hold an Australian financial services licence (AFS licence).

Many accountants are at the forefront of advising clients on SMSFs, given the need for ongoing compliance services such as preparing financial statements, preparing and lodging tax returns, assistance with preparing SMSF annual returns, and providing tax advice in relation to interests in an SMSF.

Until 2016, accountants had the benefit of a specific exemption for services provided in relation to SMSFs. From that time, the available exemptions were narrowed and a new form of limited AFS licence was introduced into the Corporations Act. 

Accordingly, the options for accountants and administrators are either:

• Obtain a limited AFS licence, which permits the accountant to make recommendations about acquiring or disposing of an interest in an SMSF;, investing in particular classes of assets, and asset allocation to, say, international shares;
• Rely on narrow exemptions, which permit the accountant to provide advice on establishing, operating, structuring or valuing an SMSF (not whether they should establish an SMSF), provided the accountant advises the client that the accountant does not have an AFS licence, and that they should consider taking advice from an AFS licensee before making a decision in relation to a product.

Part of providing sound advice, is ensuring that advice complies with the licensing regime (and exemptions) for providing financial services. 

This is important for both advisors, and those thinking about establishing an SMSF, to bear in mind.

The Bottom Line

SMSFs can be powerful tools, but only in the right circumstances. While they offer flexibility and control, they also demand commitment, knowledge, and ongoing responsibility. Whether you’re advising clients or considering an SMSF for yourself, the key is informed decision-making.

More information from Maddocks

For more information, contact Maddocks on (03) 9288 0555 and ask to speak to a member of the Commercial team.

What are the Cleardocs products available?

Cleardocs offer the following relevant products:

• Superannuation Trust (SMSF)
• SMSF Set Up + Register Corporate Trustee
• Update to SMSF

Please read the Product Benefits, Product Information and Frequently Asked Legal Questions carefully and consider if it is appropriate in your circumstances before purchasing any Cleardocs product.

More Cleardocs information on related topics

• Super Under Siege: ASIC Flags Spike in Misconduct in Latest Annual Report
• Update for SMSF Trustees: ATO Enforcement Actions for Non-Compliance
• Necessary safeguard for SMSFs and Trusts: Why you should have an Enduring Power of Attorney in place
• Reminder for SMSF trustees: be aware of legal requirements for accessing superannuation early
• SMSF trustees, when things go wrong, don't shy away from voluntary disclosure
  
  

[1] Australian Securities & Investments Commission

[2] Review of SMSF establishment advice, Report 284, November 2025 (Report)

[3] Tips for giving self-managed superannuation fund advice, Information Sheet 274 (Information Sheet 274)

[4] Refer to Information Sheet 274