“Non-qualified suppliers first emerged with the rise of ‘shelf-company’ providers who could offer new company documents on a more time-efficient and cheaper basis. Before the advent of shelf companies, law firms were the predominant suppliers of legal documents,” Butler said.

“In support of this practice, shelf-company suppliers asserted that incorporating companies, placing them on the shelf, and then subsequently transferring shares and changing directors merely involved corporate secretarial functions, not legal services.”

Broadly, legal services include preparing documentation that creates or regulates rights between parties.

“Legal services for a fee should only be provided by a registered legal practitioner in the relevant jurisdiction and lawyers are subject to regulatory supervision, must abide by strict professional and ethical rules and must have at least a minimum professional indemnity insurance cover,” Butler added.

“Technological advancements in how companies can be registered have significantly reduced the relevance of the shelf-company concept in today's market. However, as a consequence of this change, the process of establishing a company today presents greater risks in relation to the provision of company documents constituting the provision of legal services.”

Butler explained that this is because registering and supplying company documents directly affects directors’ and shareholders’ legal rights.

“Despite this, the supply of legal documents by non-qualified suppliers has expanded significantly beyond the provision of new company documentation.”

“This development has coincided with the rise of technological automation with documents being produced with less reliance on human input. Although the range of legal documents available has increased, many suppliers remain non-qualified suppliers. While they may be popular, there are many issues to consider when using a non-qualified supplier compared to a law firm.”

Price point

Butler said that one obvious advantage of using a non-qualified supplier is that the legal documents may be – or may be perceived to be – cheaper. However, he warned that cheap is not synonymous with quality or good value.

“It is important to note that when using a non-qualified supplier, you are not dealing directly with a law firm. Some suppliers claim their documents have been legally reviewed or licensed from a law firm, but this does not offer the same level of protection or ongoing support you would get from a law firm.”

“This means the user is not protected in the same way if they were to deal directly with a lawyer. Lawyers are compelled to maintain PI Insurance which is designed to protect clients who use law firm services and suffer damages. PI Insurance is very expensive to maintain and many consumers of non-qualified suppliers do not factor this into their value proposition.”

Quality over convenience

He continued that assessing the quality of a legal document such as an SMSF deed is not easy unless you are willing to spend the time carefully reading the document and have the legal and technical skills to do so.

“If you do not have these skills, we recommend you engage a suitably qualified person to do so, such as a lawyer or other expert with the relevant skills and expertise. However, the cost of undertaking this exercise may make choosing a law [firm] more attractive,” he said.

“Lawyers are qualified and have training to prepare and draft documents and to provide ongoing support and advice including tailoring a document to suit a client’s particular circumstances. For example, when updating an SMSF deed, many legal technicalities often arise that can result in the variation being ineffective.”

Butler said a risk with some SMSF deeds is that they provide a range of options to deal with death benefits in addition to a binding death benefit nomination that may include a death benefit agreement, an SMSF will and possibly other options.

“Providing so many options places the adviser at significant risk as a choice is needed on which document should be used, especially as each of these documents comes with complexities and risks,” he said.

“Moreover, since these documents are likely to affect a person’s legal rights, they are likely to involve legal work. There is High Court authority supporting a non-lapsing BDBN (refer to Hill v Zuda Pty Ltd [2022] HCA 21) but some of the other documents do not have case law authority on point involving SMSFs.”

Value proposition – with legal review

Butler continued that some non-qualified suppliers who license documents also offer a limited legal review for an additional fee, but there are questions about the liability obligations in such an arrangement if something goes wrong.

“In particular, non-qualified suppliers typically issue a disclaimer along the lines that the user is responsible for making sure the document is appropriate and suitable for its intended use. Moreover, if the user obtains LLR, they will need to determine who they are to sue, the supplier or those providing the LLR,” he said.

“It is also worthwhile noting that there are substantial penalties for non-qualified persons providing legal services. Moreover, when we compared the combined cost of the license fee and the LLR fee for SMSF deeds from several suppliers it appeared there was no real cost saving compared to obtaining these documents directly from a law firm.”

What due diligence is needed?

Before ordering legal documents from a non-qualified supplier, SMSF trustees should also determine if they have undertaken sufficient due diligence to determine whether they have made an informed decision.

Butler said they should review the suppliers’ terms and conditions to check who is liable if things go wrong and determine what is covered by the LLR and what PI Insurance, if any, is provided and by whom.

“If they are taking on the responsibility, they should have the documents carefully reviewed to see if they are appropriate and if there are any traps or issues. If they do not have the skills or expertise to undertake this task, they should engage a lawyer or expert.”

“Additionally, they should determine if they can obtain special tailoring and additional support from the supplier or a law firm that provides the LLR, as well as compare what the supplier is offering to what a law firm could provide after taking into account the overall value proposition and the risk factors.”