There are numerous suppliers of self managed superannuation fund (SMSF) deeds and other documents, apart from law firms with SMSF expertise and no shortage of accountants, financial advisers and ultimately clients, prepared to use their documents and services.
In a longer article, DBA Laywers looked at the issues with the non-lawyer part of this industry (see related Tax Article). This is an abbreviated version of that article, for this ‘Update’ series.
There are a range of non-lawyer suppliers and they could be said to fall into two categories.
- SMSF administrators, advisers and off the shelf suppliers. Typically, these suppliers do not have any significant technical or legal expertise, in respect of applicable law or drafting legal documents. They simply print and bind documents that have been prepared by others. They have a precedent which may or may not have been drafted or reviewed by a lawyer. They treat this as a ‘add variables’ approach to otherwise standard form documents. The variables usually come from an accountant, or financial adviser, who is giving legal advice by simply recommending the precedent and the particular variables. For instance, the choice of individuals or a company as trustee, has many legal implications that will affect many things). SMSF documents (particularly deeds) should be reviewed often, given the rate of change in the law. You might not get this service, just by going to a lawyer, but a good specialist lawyer will probably take responsibility for for alerting you when updates are necessary.
- Web-based suppliers that are, broadly, much the same as off the shelf suppliers, except that the variables can be filled in on the web-portal and potentially could be filled in by anyone (including potentially the client). A client filling details, solves some of the problems, but not others.
It is price that drives most of this demand, but one has to ask (rhetorically), is this a false economy, when an SMSF deed, developed by leading SMSF specialist lawyers, considering the individual client’s circumstances, can be had for $400 or $500?
Doing this, without a lawyer can create the following problems.
- The client could end up with a document that is ineffective (invalid) or has the wrong effect – directly, or by ‘knock on’ effect, on other documents or transactions (eg. Binding Death Benefit Nominations, Wills or Estate Planning). The effects could range from the inconsequential to the disastrous (eg. no-fund, no deductions, no benefits, wrong tax regime, and even the wrong beneficiaries getting the benefits or getting control of the fund).
- A client who filled in the variables, without advice, and brought these problems on their own head, might have no remedy, but they’ll still have the problems.
- A client who relied on the supplier of the precedent, or an adviser for recommending the variables, might have an action against them – in negligence or similar forms of action (and they will have difficulty defending the action, in the light of what follows).
- A supplier or adviser, who is not a lawyer, will probably have no professional indemnity insurance, to cover this liability. This is because the liability has arisen because they have done the work of lawyers, without being a lawyer, which they were not entitled to do and is an offence. Such liability is usually excluded from cover under most PI Insurance policies.
- The non-lawyer supplier or adviser could well be committing various offences, such as breaching the prohibition on unqualified legal practice and holding themselves out as entitled to engage in legal practice (s10(1) & s11 of the Legal Profession Uniform Law). Also, they will be unable to collect their fees, and will have to pay back any fees they have collected (under s10(2) of the Uniform Law). This latter sanction will create open ended financial exposure and threaten their ‘business model’ (think ‘gig’ economy companies, threatened by having to pay ‘contractors’ as ’employees’).
- Accountants and Financial Advisers, who do lawyers’ work, are likely to be in breach of their professional rules and risk sanction and ultimately being being ejected as a member. This will threaten their livelihood.
- A registered tax agent, who engages in illegal unqualified practice, is likely to be in breach of the their mandatory ‘Code of Conduct’ – in particular the duty to provide services ‘competently’ (s30-10(7) of the Tax Agents Services Act 2009). It will be difficult for them to maintain that they were ‘competent’, if they’ve committed an offence for engaging unqualified legal practice.
- Clients are not enjoying all of the cost savings available from these non-lawyer suppliers, who might charge as little as $100k for an SMSF deed. The Accountant or Financial Adviser might charge the client $300 (not disclosing the profit they made on sourcing the deed this way). That is likely to be in breach of the advisers fiduciary duties, to the client, at least (if not worse).
- A version of this can happen ‘en-masse’, if professional organisations (who may have rules prohibiting their members undertaking any legal work) accept advertising from these unqualified suppliers of legal documents, to encourage their members to buy their documents.
- Individual firms who engage in behaviour that is illegal, incompetent, or both, will not only suffer financial loss, but reputational loss. The Banking Royal Commission has shown how the blow-torch feels, with some Financial Planners in the witness box and later leaving the profession.
- And, if bad behaviour is wide spread enough, an entire profession could suffer reputational loss, in a way that the Banking Royal Commission has made excruciatingly obvious.
And, all of these problems, to save a few hundred dollars …
Comprehension questions (answers available)
- Can you get an SMSF Deed from a non-lawyer for as little as $100?
- Do you have a high level of assurance that it’s fit for purpose, in this complex environment?
- Can you buy an SMSF Deed from a legal firm, with established expertise, in SMSF work, for about $500?
- Has this price difference driven a non-lawyer industry, in the supply of SMSF documents?
- Are there any problems with this?
- Could the client end up with a defective product?
- Could the client have an action in negligence, for a defective product?
- Could the defendant, in such an action, rely in their PI insurance, for cover?
- Could the non-lawyer participants be prosecuted for unqualified legal practice?
- Could the non-lawyer participants have to disgorge their fees?
- Could advisers be in breach of their professional rules?
- Could Tax Agents be in breach of their statutory duty of ‘competence’?
- Can we be sure that clients are enjoying all of the cost savings (by not using a lawyer)?
- What would the Banking Royal Commission have to say about this?