SMSFs: no compensation for theft or fraud

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Trustees of self managed super funds (SMSFs) will need to be extra vigilant when choosing high return investments after a decision by the Government not to offer compensation following its review of the Trio Capital collapse.

Responsible for losses of approximately $180 million, Trio Capital collapsed in 2009 following the largest superannuation fraud in Australian history. Managing more than 20 investments, the largest fund was the Astarra Strategic Fund, which was generating incredibly high returns. This attracted the attention of a fund manager who alerted the authorities and the fraud was uncovered.

Those who had invested in Trio Capital through large superannuation funds were covered under the Government’s Superannuation Compensation Scheme. This scheme is operated under the Superannuation Industry Supervision Act and covers super funds that are regulated by the Australian Prudential Regulation Authority (APRA), however, when theft or fraud occurs, the Government rules on whether compensation should be paid.

In what was seen as a test case for SMSFs, the Government agreed to review the previously dismissed claims for compensation from those who manage their own investments. It found that financial regulators had carried out their roles and responsibilities diligently and therefore it would not pay compensation to any SMSFs.

Although there was previously little doubt that the Government compensation scheme did not cover SMSFs, the ruling serves to reiterate to those managing their own funds that they have to be incredibly vigilant when making investments.

Read more at The Sydney Morning Herald

Opinion: Do you have what it takes for an SMSF?

Do you have what it takes to manage your own super fund? It’s a really simple question that anyone considering an SMSF needs to ask themselves and answer honestly.

SMSFs are becoming increasing popular with nearly 600,000 self managed funds in operation in Australia. People are opting to manage their own retirement future rather than leave it to others and, with the continuing cases of poor practice and fraud at large financial institutions, who can blame them?

However, the responsibilities of an SMSF trustee are onerous and shouldn’t be taken lightly. It’s not just about trading shares or buying property. Keeping records, appointing an auditor, valuing the assets in the fund and lodging annual returns all take time and a certain amount of knowledge and experience and this is in addition to the challenges of choosing the right investments. 

The reality is also that, regardless of how vigilant you are about choosing an investment, if someone is hell-bent on committing fraud or theft, they’ll find a way to do it. Just ask any of the big banks how difficult it is to ensure everyone complies with the law. Unfortunately, when the fraud or theft involves a person’s life savings, the result can be disastrous. Mark and Ann Weir were caught up in the Storm Financial crisis during the GFC and are still fighting to rebuild their lives.

The decision by the Government not to compensate SMSFs who lost money to Trio Capital is indeed a blow for those involved. However, it was only ever going to be a last grasp at receiving some compensation. The rules after all are very clear.

Do you feel competent enough to manage your own investments? Do you think you may as well give it a go since the large financial institutions seem to be riddled with bad financial planners? Or are you more comfortable to have someone else handle your financial affairs? And, if you do set up your own SMSF, is it a question of having a professional, trusted and experienced accountant? 

Related article:
How safe is your super?

Written by Debbie McTaggart


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