Fraud and financial misconduct have cost Australians who manage their own super funds more than $100 billion in the past 10 years.
Rainmaker Information research has revealed that the publicly reported losses for DIY super funds is three times higher than general financial fraud and misconduct, which totals $30 billion.
Rainmaker estimates the fraud-related SMSF losses at $103 billion, when taking into account the loss of income from not having the money to invest.
Australian Taxation Office figures show that around $700 billion in assets are held by SMSF owners.
SMSFs provide flexibility for investors to manage their own funds and allow them to invest in assets such as property.
Although popular, SMSFs don’t offer the same protection as regular super funds. If SMSF owners are conned or receive dodgy advice, no compensation is offered for any losses.
Industry and retail funds, are protected by the Australian Prudential Regulation Authority (APRA), and, therefore, should any losses result from fraud or misconduct , fund members can apply to the Government for compensation.
“Fraud is prevalent across society; however, these alarming figures are particularly concerning for SMSFs considering SMSF trustees do not have the same protection and avenues for compensation as traditional APRA-regulated super funds,” said Rainmaker Information Managing Director Christopher Page.
SMSF owners who suffer major losses are bailed out by taxpayers, who foot the bill for generous concessions to funds and underwrite the Age Pension for those whose funds fail.
SMSF owners are vulnerable to certain financial planners who market themselves as professionals, but are largely unregulated and potentially untrustworthy.
Anyone who receives bad advice can lodge a complaint with the Financial Ombudsman, but there’s a limit to what they can claim back. SMSF owners should ensure their planners have insurance.
While SMSFs are a buyer-beware product, there are some simple steps owners can take to protect themselves, such as being wary of high-pressure sales tactics, offers of unrealistically high returns, and avoiding complex investment structures. SMSF owners are also encouraged to diversify investments and regularly monitor them for signs of trouble.
“We have a world-class governance regime in Australia, but it does not and never will prevent the incidence of fraud or misconduct, and so it is buyer beware and reliance on trusted individuals, but even then things can go wrong,’’ said Self-Managed Independent Superannuation Funds Association Chairman Chris Balalovski.
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Are you an SMSF owner? What advice would you give to would-be DIY super fund managers?