SMSF Transfers Are Increasing: What Risks Should Trustees Consider?

Recent reporting suggests Australians have transferred more than $13 billion from large superannuation funds into self-managed superannuation funds (SMSFs) over the past 12 months.

For some people, an SMSF can be appropriate. However, SMSFs are not suitable for everyone.

At Financial Dispute Legal, many of the people who contact the firm are SMSF trustees. A common concern is that they have been placed into an SMSF structure that may not have been suitable for them or were recommended investments involving risks they did not properly understand.

The Risks of SMSFs

SMSFs are often promoted as giving investors greater control over their retirement savings. That control can be attractive, but it comes with significant responsibility.

SMSF trustees are responsible for the operation, compliance and investment decisions of the fund. This responsibility remains with the trustee even where an accountant, financial adviser, broker or administrator is involved.

ASIC has also raised concerns about poor SMSF establishment advice, including advice that may not properly consider a client’s objectives, financial situation and needs.

High-Risk Investments and Property Development Loans

A common issue arises where an SMSF is used to access investments that may not be available through conventional industry or retail superannuation funds. These can include private loans, unlisted investments and property development projects.

For example, an SMSF may lend money to a property developer. These loans may be presented as attractive investment opportunities, but they can involve significant risk, particularly where there is inadequate security, limited transparency or poor assessment of the borrower’s capacity to repay.

If the development fails, interest stops being paid, or the borrower defaults, recovery of the loan can be difficult. The responsibility often falls on the SMSF trustee to take steps to protect and recover the fund’s assets.

Was the SMSF Suitable?

Where an SMSF trustee has suffered loss, an important question is whether the SMSF should have been recommended at all.

Relevant issues may include whether:

• the trustee understood their obligations;
• the risks and costs were properly explained;
• the SMSF was suitable for the trustee’s circumstances;
• the investment was appropriate for retirement savings;
• the adviser complied with their duties; and
• the trustee would have proceeded if properly informed.

Contact FD Legal

Switching superannuation to an SMSF is an important decision. Care should be taken to determine whether the structure is suitable, whether the trustee understands their obligations, and whether the proposed investments are appropriate having regard to the risks involved.

SMSF trustees who have concerns about advice they received, an investment made by their SMSF, or a loan that has gone into default can contact Financial Dispute Legal on 07 3915 0802 or enquiry@fdlegal.com.au

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