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Self Managed Super Fund (SMSF) Article
Do SMSFs have to issue a Product Disclosure Statement?

By Tony Negline.

This article may be out of date.

9th June 2004

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Helping investors make an informed choice is the main reason the government developed the Financial Services Reform provisions.

The FSR measures regulate the activities of product providers, such as fund managers, and product suppliers, such as financial planners.

Unless specific exemptions have been given then all product providers and suppliers must hold a license, issued by the Australian Securities and Investments Commission, called an Australian Financial Services License.  Heavy penalties apply for anyone who is providing services which require an AFSL but does not hold one.

Anyone who wants to sell a financial services product to a potential investor must issue a Product Disclosure Statement so that the consumer can make an informed choice.  A PDS must set out the significant details of a product including its risks, benefits and costs.  “All information contained in a PDS must be worded and presented clearly, concisely and effectively,” says ASIC in its Policy Statement 168.

Self Managed Super Fund trustees are not required to hold an Australian Financial Services License when they are providing a service as a trustee of a SMSF.

However should SMSF trustees issue a PDS.

Late last year the FSR rules were amended to exempt a SMSF from automatically having to issue a PDS.

A SMSF is does not need to issue a PDS if the trustee believes that on reasonable grounds that a SMSF member either has, or is able to obtain all the information that a PDS should contain.

At a recent CPA Australia conference an ASIC representative stated that a SMSF does not necessarily have to issue a PDS.  As all trustees of a SMSF are also the members then there is a necessarily close relationship between all trustees and members.

ASIC’s representative said that the trustee/member merely has to have access to relevant information.  The information does not need to be formerly handed over to a member but can remain at the accountants office and freely available to the member if they ever felt the need to examine it.

Wealth understands that ASIC will be adding a Frequently Asked Question to its website about this issue.

The two main accounting bodies, CPA Australia and the Institute of Chartered Accountants essentially agree with ASIC.

“At this stage there is no wholesale need for a PDS to be prepared,” the ICAA told its members in early April.  A PDS might be required “where one member dominates the fund or where you have a member who is not a trustee”.

However the CPA’s Superannuation Technical Adviser, Michael Davison, said that issuing a PDS would be good business practice but it is not mandatory.

The ICAA told its members that a PDS can be made up of, “A copy of the trust deed, membership rules, investment strategy and options and details regarding the death benefit payment should meet these requirements.  The one piece of information which is not at the client's disposal is information in relation to accounting, tax and audit costs.  This would be addressed by the issue of a letter giving estimates of these costs.”

The CPA’s Davison believes that a trust deed should not be included in a SMSF PDS.  “A trust deed is a formal legal document which, no matter how simply it has been written, will contain an element of legalese.  A PDS on the other hand is designed to educate investors and this can’t be done using complicated language and legal definitions.”

Within the financial planning community there seems to be an acceptance that a PDS should be issued.  The main motivation of financial planners would seem to be a desire to limit their own professional liabilities.  Put simply financial planners believe it is easier to assume someone has no knowledge and therefore needs a PDS rather than assume the person has sufficient savvy to work out what a product is all about without a PDS.  At this stage financial planners do not seem to have a view about what a PDS should contain.

The legal fraternity also seem to think that issuing a PDS is a good idea because it will minimise risk for all concerned it is easier to better to issue a PDS.

However the lawyers do not seem to agree on what the PDS should contain.

Some lawyers and trust deed providers argue that a PDS should contain a copy of the trust deed.  Others argue that the PDS requirements clearly state that the document should be a stand-alone document and not include any other documents.

Daniel Butler of DBA Lawyers believes that putting a trust deed in a PDS is “a lazy and ineffective way to handle the task.”

These differing views and debates within the professional community are all well and good.  But how is a lay trustee meant to know what should be done when there are so many conflicting messages?

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