Stay in your lane

Providing SMSF advice involves a confluence of legal parameters and practitioners must know the services they can and can’t offer in this context, SMSF Association head of technical Mary Simmons writes.

There are now over 647,000 SMSFs in Australia collectively holding more than $1 trillion in assets. This unprecedented concentration of private retirement wealth means disputes over SMSF assets are not only becoming more common, they are inevitable. With trillions of dollars held in super and savings expected to be passed down to younger generations over the next 10 to 15 years, the volume and complexity of these disputes are only set to grow.

For SMSF advisers this shifting landscape brings new dimensions of risk. Trustees increasingly look to their accountants, financial planners, auditors, administrators, tax agents and lawyers for advice. But when that advice crosses regulatory boundaries, the consequences can be significant.

One underappreciated risk is section 55 of the Superannuation Industry (Supervision) (SIS) Act 1993, which provides a right to claim compensation from contraventions of the statutory trustee covenants. While this provision has seen little judicial interpretation, particularly in the SMSF context, its broad drafting and undefined scope add another layer of complexity.

It raises the real risk a practitioner involved in the advice chain could find themselves drawn into litigation if their conduct is seen to have contributed to a breach of trustee duties.

Let me be clear: I’m not a lawyer and this article is not legal advice. Rather, it’s a practical look at the blurred boundaries practitioners must navigate when advising SMSF trustees. The intersecting regulatory frameworks between legal, tax and financial product advice are complex, and if in doubt, professionals should seek a legal opinion or refer their client to another suitably qualified adviser.

Clear client engagement documents, including client acknowledgements, and appropriate disclaimers are integral to managing client expectations and regulatory, or professional, obligations. However, they do not shield SMSF advisers from scrutiny. If the substance of the conduct resembles legal, tax or financial product advice, it may well be treated as such, regardless of how it is presented.

Key legal frameworks

Three primary legislative frameworks shape the SMSF advisory boundaries and inevitably overlap in practice.

The Tax Agent Services Act 2009 (TASA) mandates tax agent services must be provided by a registered tax agent, which includes activities such as ascertaining tax liabilities, entitlements and obligations under taxation laws administered by the commissioner of taxation, or representing clients before the ATO.

The legal profession laws, administered by each state and territory, regulate people practising law or providing legal services to prohibit unqualified legal practice. Serious penalties apply for preparing legal documents or providing legal advice without a practising certificate.

Finally, the Corporations Act 2001 regulates the provision of financial product advice and services. In particular, section 911A requires anyone carrying on a financial services business to hold an Australian financial services licence (AFSL) or be appropriately authorised for the financial product advice or service they provide.

For SMSF advisers the challenge lies in understanding the boundaries between these regulatory frameworks and staying within their respective lane.

The slippery slope

There is no uniform definition of what it means to practise law across jurisdictions and as a non-lawyer, my understanding is necessarily general. However, some common threads emerge. Legal practice typically involves preparing documents that require specific knowledge of legal principles, advice to clients as to their rights and obligations, and interpreting how the law applies to a client’s specific facts or circumstances.

This means preparing or amending SMSF trust deeds, drafting binding death benefit nominations or interpreting how a deed interacts with other legal obligations will generally fall within the scope of legal practice. These are not simply administrative documents as they can affect legal rights, particularly in the event of disputes or death benefit claims.

Importantly, legal practice is not confined to document drafting. It extends to any activity involving the application of law to a client’s situation or guidance normally given by a lawyer.

Even when using standardised templates or pre-populated forms vetted by a lawyer, the moment an adviser customises, interprets or explains them in context for a client, they walk a very fine line and risk crossing into unqualified legal practice.

Tax and legal advice

Section 50-5 of the TASA permits registered tax agents to charge a fee or other reward for providing ‘tax agent services’ defined in section 90-5 to include ascertaining and advising on liabilities, obligations and entitlements arising under taxation laws.

Importantly, ‘taxation law’ under the TASA is limited to commonwealth tax laws administered by the tax commissioner, including some provisions of the SIS Act, but only those for which the ATO is responsible.

The TASA does not permit advice on trust law, trustee duties or state taxes like stamp duty or land tax. Nor does it allow the establishment of legal entities or the creation of legal rights and obligations within those entities, such as setting up a company, trust or SMSF, tasks clients often seek help with from tax agents and accountants.

In today’s environment of do-it-yourself providers and artificial intelligence tools, the risk of unintentionally engaging in legal practice is growing.

For example, where a client has already resolved to establish a company to act as trustee of their SMSF and the incorporation documents have been vetted by a legal practitioner, a registered tax agent may assist with administrative steps, such as lodging forms with the Australian Securities and Investments Commission (ASIC) or overseeing execution. However, once that activity extends into explaining the legal effect of the company constitution, the nature of shareholder rights or directors’ obligations, the line into legal advice may be crossed.

Advisers who rely on external providers for SMSF establishment or trust deed documents should, at a minimum, ensure those providers are reputable and the templates they offer are developed or supported by appropriately qualified legal practitioners. Crucially, advisers should not alter them for specific clients. Instead, this should be referred to a legal practitioner to complete.

A tax agent service also includes the provision of financial advice relating to tax. This is typically advice provided by a financial adviser with regard to investment products. Practitioners will only be permitted to provide this type of advice if they satisfy the requirements that would see them considered to be a qualified tax relevant provider.

Professionals of this ilk are primarily regulated by ASIC and the Financial Advisers Register confirms whether an individual in practice can provide financial advice relating to tax.

Just to add to the complexity, general or wholesale advisers who provide financial advice relating to tax must register with the Tax Practitioners Board as a tax agent and will likely have a condition on their registration stipulating they can only provide this level of advice.

In all cases, the context and intent of the advice is critical. Ensuring advice is clearly framed around taxation outcomes is key to staying within the safe boundaries of the TASA framework.

Financial product advice

Section 766B of the Corporations Act defines the meaning of financial product advice to include a recommendation or statement of opinion intended to influence, or that could reasonably be seen as intended to influence, a person’s decision about a financial product or class of products.

The definition is broad, but also extremely complex. It covers not just overt recommendations, but also opinions or assessments that could shape a client’s choices and those that could reasonably be regarded by the client as intended to have such influence, even if this was not the intention of the adviser.

An SMSF is a financial product and therefore a recommendation or statement of opinion to set up a fund or, just as importantly, not set one up is financial product advice. It requires the adviser to be appropriately authorised under an AFSL.

Importantly, the financial product advice is defined to exclude advice:

• provided by a lawyer in their professional capacity about matters of law, legal interpretation or the application of the law, and

• provided by a registered tax agent given in the ordinary course of activities as a registered tax agent as reasonably regarded as a necessary part of those activities.

It is also possible for an unlicensed adviser to provide factual information, for example, comparing the different types of superannuation funds available to a client. However, care must be taken to ensure the factual information is not presented in a manner where the client considers it to be influencing them to make a decision.

Further, if the adviser has an existing relationship with the client and understands their financial situation or needs, the circumstances may lead a client to believe any advice provided is personal financial product advice because many individuals do not understand who can and cannot provide them with different types of advice.

The fallout

Crossing professional boundaries can result in a range of consequences from disciplinary action, regulatory penalties, civil liability and even the loss of professional indemnity (PI) insurance.

Providing services outside one’s licensing or registration can constitute professional or regulatory misconduct, leading to reprimands, suspension or cancellation of licence or registration from both the regulator and, if applicable, a professional association.

The Australian Financial Complaints Authority has also repeatedly ruled against financial advisers where advice was outside their authority or inadequately documented, noting disclaimers cannot override licensing breaches. The result is payment of financial compensation to the client and a possible referral to ASIC for further investigation.

Importantly, the PI insurance safety net may only function where the adviser acts within their licensed remit as most policies exclude cover for unlawful conduct or services beyond the insured’s authorised scope. In such cases, the adviser will be left personally exposed to damages and legal costs.

Finally, there are serious ethical implications. Acting without appropriate authority undermines client trust, compromises the duty to act with integrity and breaches codes of conduct requiring advisers to act within the bounds of their competence.

Many regulatory frameworks and statutory codes of conduct emphasise honesty, due care and acting in the public interest –principles that are directly challenged when an individual operates beyond their lawful remit. Ethical breaches can also compound the seriousness of a regulatory violation and influence the severity of any disciplinary action taken.

Putting it all together

The SMSF ecosystem is a complex intersection of regulatory frameworks and no single adviser can, or should, cover it all.

Success requires technical competence, a clear understanding of regulatory limitations, the discipline to stay within scope and be transparent with clients about authorised activity.

Collaboration is also essential. Working relationships involving a variety of professionals such as legal practitioners, licensed advisers or tax agents, enable a more complete service without breaching professional boundaries.

In an increasingly complex and litigious environment, the safest and most effective path is shared whereby professionals need to do their part well and know when to call in others.