ASIC Report 824 – poor SMSF advice & how to fix it

** Fourth Line has reviewed over 20,000 pieces of advice in the last 6 years. **

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Licensees using the Fourth Line platform choose the advice oversight strategy they want to implement.

Some start simple – 100% of all new advice is prevetted.

Others employ a split strategy – some advisers on prevet; some on a scaled-up post advice strategy; and all “high risk” advice is prevetted no matter who the adviser is.

So, what’s “high risk” advice?

Licensees decide this for themselves, but typically it covers:

• Gearing strategies,

• Direct equity strategies, or

• SMSF Advice or all SMSF advice involving an LRBA

Most licensees who join the Fourth Line quality advice community already treat SMSF advice as the highest-risk category in their book.

ASIC reinforced this view with the release of “Report 824: Review of SMSF establishment advice” in November last year.

Report 824 provides insights from ASIC’s review of the quality of personal advice provided by financial advisers to retail clients about establishing a self-managed superannuation fund (SMSF).

It provides a useful lesson to licensee and financial advisers about the risks inherent with SMSF advice and uses a range of findings, examples, action points and risk indicators to demonstrate how to improve the quality of SMSF establishment advice, including identify circumstances where an SMSF should not be recommended and detect misconduct.

Report 824 reviewed 100 SMSF establishment files across 12 advice licensees.

The report found:

• 38 files were compliant with the best interests duty and related obligations.

• 62 files failed to demonstrate compliance with the best interests duty.

• 27 files raised significant concerns about client detriment, and in 24 of those files we also identified that the financial adviser failed to prioritise the interests of the client above their own interests or that of their licensee or an associate.

• Pre-vetting was in place on 47 files, and of these, 33 did not demonstrate the financial adviser complied with the best interests duty and related obligations. This included 13 files that also raised significant concerns about client detriment in relation to the advice.

The detriment concerns clustered in a small subset of advisers, not evenly across the cohort.

Is the problem really this bad?

Report 824 is not the only signal about the appropriateness of SMSF advice.\

AFCA’s most recent complaints statistics highlight that SMSF complaints were up 95% in the 2024-25 period, with SMSF matters making up close to a third of all investments and advice complaints.

Complaints alleging a failure to act in the client’s best interest rose 124%.

What are these two sources of information telling us?

• ASIC is testing the advice and discovering deficiencies.

• AFCA is receiving the consequences of these deficiencies in the form of complaints.

The gap between them is where licensee oversight either does its job or quietly fails to.

A properly implemented pre-vetting strategy at the licensee level would discover the issues before the advice is delivered, thus preventing any breaches and negating any complaints being made to AFCA.

Why the safety nets are missing the issue

One of the most interesting questions to arise from Report 824 is: how did 33 files that were prevetted fail to comply with the best interests duty and related obligations.

The only plausible answer is that the “prevet” was not conducted thoroughly or by an independent third-party.

Although the report does not confirm it, it’s likely the prevet was conducted internally using simple checklists and looked more at the structural compliance of the advice as opposed to the regulatory compliance of the advice.

In smaller licensees and self-licensed practices, the pre-vetter is often located physically near to the adviser. Sometimes it is the principal reviewing their own work.

How much independence can truly exist in such cases? How much scrutiny can a staff member exert on the advice provided by the Practice Principal? How broad is the analysis – does it include files note, discovery documents, alternative product comparison, and alike?

Report 824 confirms ASIC’s view that:

“To be effective, pre-vetting processes should involve a detailed assessment of the financial adviser’s compliance with the best interests duty and related obligations, including a comprehensive check of the suitability of an SMSF for the client.

Taking a risk-based approach to selecting instances of advice and client files for pre-vetting will increase the likelihood of identifying potentially non-compliant advice and adviser conduct.”

Why prevet?

The SOA is the adviser’s story.

A reviewer who only tests the internal consistency of that story will find it consistent.

What they will not find is what the SOA omitted, such as the:

• Suitability of product and strategy selection.

• Mis-statement of justifications supporting SMSF advice.

• Alternatives or existing products not properly considered.

• Potential conflicts that were not raised in the SoA

• Lack of reasonable investigations.

Report 824 was specific on the misuse of “control” as a justification, with no exploration of what control actually meant to the client.

What does “appropriate SMSF advice” look like?

ASIC’s Info Sheet 274 (“Tips for giving self-managed superannuation fund advice”) helps to spell out what appropriate SMSF advice might look like.

It provides tips to help licensees and advisers comply with their legal obligations when giving advice about self-managed superannuation funds (SMSFs), including a range of factors to consider when advising a client to withdraw their superannuation from a fund regulated by the Australian Prudential Regulation Authority (APRA) to set up an SMSF.

Report 824 explicitly notes that where a licensee’s policies covered the SMSF suitability factors and additional considerations from INFO 274, advice compliance was higher and detriment concerns were lower.

Licensees can use INFO 274 to help inform the standard against which SMSF advice and SMSF advice oversight should be measured.

For example, a practical four-layer model could include:

• Advice suitability. Every SMSF engagement begins with a documented assessment of whether an SMSF is suitable for this client against the INFO 274 factors, and the adviser having documented evidence to justify the selection of an SMSF. Suitability is tested before strategy is recommended.

• Advice construction. The file demonstrates the adviser explored the reasons why an SMSF was appropriate for the client and the file contains evidence justifying the specific client goals and values. The file contains evidence to show genuine alternatives were considered (including existing products and/or retail or industry fund options where appropriate), and discloses and manages any conflict that could skew the recommendation.

In this context, financial advisers also need to include consideration of Standard 3 and Standard 5 of the Financial Adviser Code of Ethics.

• Pre-vet with purpose. 100% of SMSF establishment files are pre-vetted by an independent reviewer, against a robust framework that includes ASIC Info Sheets, Reports, and the relevant sections of the Corporations Act. Every decision should leave an evidence trail.

• Analystics across every file. Licensees need to implement systems that enable them to have real-time oversight as to whether one adviser is disproportionately recommending SMSFs. Whether reasoning and justification language is suspiciously similar across clients. Whether recommendations cluster around a related-party benefit.

ASIC was clear that no single risk indicator works alone. The combination is the point.

For SMSF advice, the contentious layer is the first one – advice suitability.

SMSF versus an alternative retail super fund is rarely a clean choice, and reasonable advisers can land on different recommendations for similar clients.

The standard is not that an SMSF was the right answer.

The standard is that the file evidences a genuine, client-specific test of whether it was, with the alternatives properly considered.

More often than not, a move from a retail or industry super fund to an SMSF will result in the client paying higher ongoing fees, once all fees associated with the SMSF are included.

Bigger than just ASIC

A recent FSCP determination put all four layers into one frame.

An adviser recommended an SMSF, a rollover, non-concessional contributions, and an investment in unregistered wholesale managed schemes (FSCP Outcome – 20/02/2026 Mr. T.)

The FSCP found three problems associated with the advice:

• The SMSF itself was not appropriate given the client’s circumstances and the higher fees.

• Concessional contribution strategy was never offered (but relevant due to tax efficiency based on client circumstances).

• The wholesale funds were not appropriate for the client.

• Client was paying higher fees (versus appropriate alternatives)

Breaches were recorded under sections 961B(1), 961G and 961E by way of Standard 5.

A written direction was issued which required an audit of the next 10 retail advice files at the adviser’s cost.

Key lesson?

SMSF recommendations must stack up on fees, fit to purpose and alternative strategies (including concessional contributions). Wholesale investment recommendations require specific analysis to decide appropriateness.

A rigorous independent third-party prevet audit of this advice case would have identified these issues before the advice was delivered to the client.

This would have avoided:

• breach of Corps Act civil penalty sections

• breach of Code of Ethics

• breach reporting obligations under s912DAA

• potential complaint to AFCA

What now for licensees?

Report 824 has set the scene for closer inspection SMSF related advice by the regulator, ASIC.

ASIC has signalled enforcement is progressing on the worst files from the report.

The financial advice industry has been put on notice.

Licensees have been asked to review their SMSF advice and remediate where required.

ASIC has given advisers and licensees the rules of the game when it comes to SMSF advice through Info Sheet 274 and Report 824.

Key action points for Financial Advisers include:

• Do not mis-sell SMSFs on the basis of control

• Consider the suitability of an SMSF for the client

• Do not recommend an SMSF if it will expose the client to unnecessary and inappropriate risks

• Prioritise the client’s interests over those of the financial adviser, advice licensee and associates

• Consider the client’s need for suitable and affordable insurance

• Include the basis of the advice

• Use professional judgement

• Keep good records

Key action points for Licensees include:

• Ensure monitoring and supervision activities are effective

• Include SMSF suitability factors and additional SMSF considerations within policies and procedures

• Have robust and effective policies and procedures for managing conflicts of interest

• Keep good records

None of this is new.

But we are all being reminded that the regulator is now watching and ready to take action.

How can Fourth Line help?

If you want to review your SMSF oversight strategy against the new standards, we are happy to help.

Fourth Line has reviewed over 20,000 pieces of advice since 2019.

The Fourth Line “engine” is AI-powered and includes all updates from INFO 274 and the Report 824 findings.

Fourth Line provides licensees with real time oversight of any gaps or potential issues within existing adviser networks.

Request a demo here https://fourth-line.com.au/demo/

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Fourth Line is a rigorous RegTech risk management and compliance system for advice practices, dealer groups and other wealth management participants. Fourth Line uses algorithmic approaches to simplify the complexity in advice reviews whilst maintaining human oversight, empowering compliance teams to coach and develop strong advice behaviors through data driven insights from advanced analytics for adviser, practice/dealer group and industry benchmark comparison with centralised document storage and access to meet regulatory needs. 

For information email: info@fourth-line.com.au