Compliance & Regulation

SMSF responsibility lies with trustees

It is very clear SMSF trustees, or directors acting through a company as trustees, who run funds have the responsibility for the decisions that are made. This is essentially true whether it is an SMSF or large public offer fund.

Every new trustee or director of a corporate trustee after 30 June 2007 should have signed a declaration that commences: “I understand that as an individual trustee or director of the corporate trustee of ‘my fund’ I am responsible for ensuring that the fund complies with the Superannuation Industry (Supervision) (SIS) Act 1993 and other relevant legislation.”

It is my experience that major contraventions, such as loans to relatives, arise from fund activity undertaken without adviser input. I have also noticed trustees will often avoid the adviser for a period after they take such an action. This is possibly because they know what will be said and they know it should not have happened.

It follows that advisers do not have an opportunity to shape the transactions but perhaps merely help clean up the mess.

If incorrect advice was given, then it may be a relevant factor to assist the fund or trustee/director in mitigation of penalty, either under income tax (perhaps as a safe harbour) or under the SIS Act as a trustee administrative penalty. However, this is not a transfer of responsibility; trustees are still responsible. It follows they are liable for the consequences, including penalties, of what was done.

The services advisers provide are primarily to advise and/or record the activity of the fund. In my 15 years of dealing with SMSFs, I have seen advisers who actually become trustees of funds for clients, but fortunately that is uncommon.

Sometimes an adviser may need to end their engagement with an SMSF if they really cannot agree with what is proposed, but they do not run the fund.

Equally, advisers don’t always have to agree with the trustees. We advise them, but they must act and take responsibility for what they have done.

I am therefore surprised when I hear advisers say the trustees of their funds will never commit a contravention. I think it is understandable advisers identify with their clients and look to walk in their shoes, but there are limits.

However, care is needed to ensure the adviser is not tasked with the role of the trustee. This action puts the adviser at risk with regard to professional indemnity insurance, and may prevent the trustee from understanding the importance of their role and the responsibility that goes with it.

Stuart Forsyth was formerly assistant deputy commissioner at the ATO and is now a superannuation consultant.


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