Caution on debt to fund super The Reserve Bank has said it will closely monitor the increasingly popular strategy of borrowing to invest in real estate through a self-managed superannuation fund. It was only a small mention in the Reserve Bank's minutes of its interest rate policy meeting, but it shows that concerns have reached the top table of our financial system. The minutes show that the bank believes some households could be starting to take some risks with their finances. The benefits of self-managed super funds are being advertised heavily on prime-time television and on radio and on the internet. These self-managed fund "administrators," many of which are owned by the big financial services players, are appealing to investors who want to take control of their retirement savings. There are many legitimate reasons for the growth in number of self-managed funds to almost 500,000 from less than half that number 10 years ago. But they are not for everyone. The advertising blitz is increasing awareness of self-managed funds among the general populace. And it is making the ground much more fertile for the property spruikers. While issuing warnings about holding geared property in self-managed funds, the Australian Securities and Investments Commission has also been keeping an eye on advice-giving in relation to self-managed funds generally. When the regulator released its report in April on the quality of self-managed fund advice, it found 28 per cent of advice was "poor" and there was room for improvement in the quality of advice that clients received. The report targeted the quality of advice provided by financial planners and accountants of lower-balance self-managed funds; those with balances of $150,000 or less. On Monday, as part of its follow-up to that report, ASIC released proposed guidelines to help improve the quality of advice given by planners and accountants. They would have to make clear to investors the costs of running a self-managed fund and how those costs compare with the cost of large superannuation funds. The regulator also wants advisers to warn investors that they may be worse off if they discontinue the life insurance they have with a large super fund. That is because large funds usually have automatic acceptance for life insurance without the need for a medical exam or medical history. Planners and accountants would also have to point out that self-managed super funds are outside the government's compensation scheme should there be theft or fraud. The regulator will discuss its proposals to increase the disclosures required by planners and accountants with the financial services industry and investors before deciding on the final approach. There is an argument that says this extra guidance from the regulator should not be needed. The principal of Townsends Business & Corporate Lawyers, Peter Townsend, says licence holders' obligations under the Corporations Act are fairly general, but "much of this type of disclosure probably does fit within the general description." He says ASIC is probably trying to make it clear so that it is not open to interpretation by a court in the future. Advisers are now under a legal obligation to act in the best interests of the investor. The regulator's hand is now stronger than ever.