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?

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Written by Debbie McTaggart


Total Comments: 32
  1. 0

    Typical. Incompetent investment firms can make mistakes and are compensated but competent SMSF trustees who make a mistake do not get compensated. Where is the fairness in that when after all SMSF have to be registered and are subject to audit by the ATO and where a “competent” investment fund gets compensated why shouldn’t a SMSF that invested in that same “dud” get treated the same way. If a SMSF invested in a Dud that no one else would touch, then it would be fair that they not get compensation.

    • 0

      I bet that if it was a union managed fund there would be hell to pay. No, we don’t need a Royal Commission into the financial industry, too many mates will get hurt.
      And, today we hear that the major plank in the government’s budget restoration is BRACKET [email protected]!
      After 6 years in opposition and nearly 3 years in government, they still have absolutely no plan!!!

    • 0

      It has been consistently shown that industry funds, which are NOT union managed by the way but only setup between unions and employers to bypass the shonky advisors, are well managed and not ripping off their members.
      You really should stop believing LNP propaganda.
      The industry funds are covered for fraud in the same way the commercial funds are.

    • 0

      This is consistent with how this government operates: all protections for big business and mums and dads can go whistle.
      AND WE DON’T NEED A ROYAL COMMISSION INTO THE FINANCIAL INDUSTRY? Of course we do….and voters need to ignore the government show about unions where they ignore the real issue: the crooked top end of town where rorts and fraud are routine.
      We need an election and we need controls on the media running their propaganda campaigns for their government.

    • 0

      There is one coming shortly mick, an election that is, and what ever you do vote Independent, don’t forget now. Cheers 🙁

    • 0

      Royal commissions are more of a demonstration of pretending to do something rather than actually doing something proactive.

      Just look at royal commissions of late, what have they achieved?

      The current one investigating child abuse will be yet another toothless tiger.

      As readers have suggested, too many mates will get hurt. Thus is the legal system in Australia.


  2. 0

    I manage our SMSF we got rid of our advisor for incompetence and some bad suggestions for investments we now invest in some share advisor sites and make our own investments based on our research. We have our investments split 50% equities and 50% in alternative investments such as fixed interest and property funds. The setting up and remove our old advisor from all correspondents from our investments was painful but worth in in the long run, this was necessary for all the records for our tax return. We still engage a tax professional and she also organises the yearly audit. All in all we are saving at least $10k that we use to pay to our advisor, who to say the least was not good and tried to manage everything on our behalf. We now feel we are getting a good return of around 8% and manage it ourselves.

  3. 0

    I am with a super provider who charges NO fees for administration or switching. They do as I advise them so I do not use an adviser, accountant, or other Charlatan I would have to pay. The provider does what I ask them to as well as submit the financial updates of my super account to the government (ATO and Centrelink). I have no periodic paper work to do with my super, except for spending the paper currency notes from growing options. Life is good.

    • 0

      You can be lucky. But then you pay (through the nose) for precious little other than tracking the market. Industry funds though have so far been great, which is why the government have tried to get all unions representatives on the boards sacked and replaced with the big end of town.
      Don’t you just love life…………..

    • 0

      mick, I do like trying to keep one step ahead of any cheating government to preserve what I have worked hard for and what is MINE – and so far, so good. I don’t like being diddled, fobbed-off, or lied to and all governments, as you know, will try and do all to you, the taxpayer. Anyone would be hard-pressed to name a half dozen politicians who weren’t insincere, hypocritical, two-faced, sycophantic, liars, greedy, or dishonest. God help us!

  4. 0

    If these APRA funds are managed by such highly qualified and highly paid professionals why would they invest in such products in the first place let alone need compensation?

    • 0

      Blah, blah, blah………..

    • 0

      Bonny, best do some research. There are no “APRA funds” and no reference to such in this item. APRA is the Australian Prudential Regulatory Authority whose role it is to ensure proper behaviour in the finance and insurance industries.
      You could reasonably ask if they do their job, whilst being funded by the industries they supervise. Perhaps the probability of a Government enquiry finding fault with financial regulators is very low, particularly the LNP who protect their own funding sources.

    • 0

      SMSFs are regulated by the ATO whereas all other super funds are regulated by APRA.

    • 0

      Peking so long as it is legal for a corporation to issue 3 trillion shares to board members and then consolidate all other shareholders shares away to single digit holdings then no APRA is not ensuring proper behaviour and won’t protect the investor. Best to protect yourself if you can and sell at the first hint of rabid board greed, name changes, board membership changes, odd reports etc. Safe and not sorry by keeping an eye on the ball and trusting no one at all.

      Most regulation is not worth the money thrown at it and deregulation occurs far too frequently anyway to actually rely on it to keep you safe. Far better to walk away and live to invest another day.

  5. 0

    SMSF’s are big danger to those on low or middle incomes with less than $500k to invest. It has not been well publicised. The Government continue to ignore the problem.

    Once you have started an SMSF it is sheer murder to administer. Worst of all the fees to run it keep increasing. The red tape expected by the ATO is horrendous.

    If you appoint an accountant and auditors to run it, there is little or no protection against their bad advice. If you take an accountant’s advice to start an SMSF, there is no provision for the ATO to let you stop the SMSF if it is not suitable for you – even if you get into financial hardship. Winding up (closing) the SMSF involves a mountain of paperwork and high accountant and auditor fees.

    As said many times on this website, the whole super system needs an overhaul including SMSF. At present it is just another way for you to be ripped off.

    • 0

      Come on Brian…..those at the top of these organisations are doing nicely for little more than tracking the market. You don’t want to upset this apple cart do you?

    • 0

      That sounds like what accountants and auditors want people to believe.

      I had no problem with setting my up, paperwork administering it or satisfying the requirements of running my SMSF. It costs me about 0.3% of the total funds in fees each year.

  6. 0

    Another good illustration as to why Australians should be demanding that this LIEberal party Govt set up a royal commission and sort out all these shonksters. Talk about union organisers over spending on their credit cards!! These bludger’s who have wrecked the retirements of so many Australians must be made accountable for their crimes- yes crimes. And why hasn’t this lying government taken to them with the same fervour as shown when dealing with the unions? simply because they are looking after the top end of town. Press on with it Bill, and while your at it make it ALP policy to set up a crime commission. I’ll guarantee if you do you’ll simply shit this election in because the average Australian has had a gut full of non tax paying rip off bludger’s and want them brought to account.

  7. 0

    You also could use a WRAP account which is a superannuation fund but you are in control and manage your own investments if you wish, without all the hassles of an SMSF. note an SMSF is only effective when you have a minimum investment and in the longterm when your mental capacities are not anymore what they used to be what then. Find a good person you can work with and enjoy life. bugger the fees as long as they are within limits you can work with.

  8. 0

    No germsjerk69. I just want the rip off merchants in the financial circle treated in the same manner as the rip off merchants in the unions. They all stand condemned in my book and that’s why we desperately need a royal commission into the banking and financial sectors to sought it all out in the same way as the royal commission into the unions did. That is in spite of the fact it was only set up for political purposes. You can bet though, Tumbles Turntable and his Lieberal govt will do all it can do dodge the issue much to the detriment of the average Australian who should be able to rely on his/her government to ensure they get a fair go. I say, bring the royal commission on, Germsjerk69, bring it on.

  9. 0

    Maybe, we should be looking at the whole principle of SMSFs? Maybe lump sums are the concern and payments should be from annuity type investments only? Why do people “invest” in the likes of Trio Capital in the first place. A great portion of those funds are taxpayer funded by way of very generous taxation treatment because the idea of superannuation is to reduce the call on the taxpayer in retirement, so, generous tax treatment is provide to “reward” those who save to create those SMSFs and as an incentive to do so as much as possible.
    Maybe, all taxpayer subsidized portion should have to be invested in a government guaranteed fund, such as the Future Fund, or, an infrastructure fund which only builds in Australia?
    So, shouldn’t the question be asked, why those funds are allowed to be gambled in fringe investment products, even real estate and equities (especially with BORROWED money!!), which, after all, are also potentially high risk. Just ask those who sold real estate in the late 1990s or had super funds invested through the 1987 and 2008 stock market crashes!!!l
    Superannuation, like taxation, is universally recognized as currently being a dog’s breakfast and I’m amazed that after so many years neither party has the guts to do a complete overhaul of both and not just at the fringes(yet, it appears that the Coalition isn’t even prepared to do that!!!).

    • 0

      Greed is the answer people invest in these high flying funds offering 13% when banks are giving 2.5%. You take the risk you wear the consequences.

  10. 0

    I want peace of mind in retirement and running my own super fund was not an option . I do not feel I am up to the job and leave it in the hands of Hesta an Industry super fund. Some may wish to make more money doing it themselves (or they think they will) but I am happy to get a moderate return.

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