Can a financial manager be involved in client’s SMSF?


Julie Hartley

We recently had to consider a scenario where a Financial Manager considered establishing an SMSF on behalf of a heavily disabled client (“Individual”) and act as the sole director of the corporate trustee.

A Financial Manager (as defined in the relevant Guardianship Act) is a person appointed by the Civil and Administrative Tribunal (“Tribunal”) to manage the financial and legal affairs of a person who lacks the capacity to do so.  The Financial Manager then has the authority to deal with that person’s financial affairs, such as operating bank accounts, dealing with their assets, paying bills, etc.

The above scenario raised some interesting questions.

Should the Individual even have an SMSF?

As with mentally competent persons, the answer to this question is best answered by a properly licensed financial adviser who reviews all of a client’s circumstances.

The main complication is deciding who would take on the role of trustee.  As a person under a disability, the Individual would be unable to act as trustee or director of a corporate trustee and would need to find someone willing to take on that role as the Individual’s legal personal representative (‘LPR’).

This may be easier said than done as an LPR does not simply act as an ‘agent’ for the Individual; instead they take on all the obligations and liabilities of the role.  In light of the increasingly onerous responsibilities and obligations that come with running an SMSF, a person willing to take on that role may be difficult to find.

Would it be appropriate to appoint the Financial Manager as the sole director of a corporate trustee?

The Tribunal has a duty to appoint someone they consider suitable for the role of Financial Manager and may not necessarily appoint the person suggested in the application.  Generally, the Tribunal will appoint the Public Trustee for the relevant State/Territory in that role.

The Public Trustee would then most likely have to approve the appointment of the trustee.

In the event that the Tribunal agrees that the nominated person is capable to be appointed, would it be appropriate for the Financial Manager to act as the sole director of the corporate trustee?

A Financial Manager has a duty to act in the Individual’s best interest when making financial decisions, which is consistent with the duty of a trustee to act in the best interest of the member(s) of an SMSF.  However, as the sole director of the corporate trustee, the Financial Manager would have complete control over the SMSF and its resources.  Unlike powers of attorney, the Individual is not the one appointing the person who will control their affairs, creating a risk for abuse.  However, as it is likely that the Financial Manager would have to report to the Public Trustee on the running of the SMSF, this may mitigate the risk.

In circumstances where the Financial Manager acts as a licensed financial adviser and recommends that an SMSF be set up for the Individual, is there a conflict for the Financial Manager to implement their own advice?

The Financial Manager cannot be remunerated for their work as financial manager (unless approved by the relevant Public Trustee or Supreme Court), nor can they can be compensated for their role as trustee.  As the Financial Manager would not derive any personal or financial benefit, there does not appear to be any conflict of interest, provided it is all done in the Individual’s best interest.

By Julie Hartley, Solicitor

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