Recent allegations that trustees of self managed super funds (SMSFs) have no recourse against fraud and theft are simply not true, says the SMSF Professionals’ Association of Australia (SPAA).
SPAA CEO Andrea Slattery says: “It is correct that SMSF trustees have fewer avenues for legal action against fraud and theft compared with trustees of the APRA-regulated superannuation funds; but it’s wrong to say they have no available options.
Slattery praised the recent release of information on the Australian Taxation Office (ATO) website about the legal options available to SMSF members who suffer losses due to fraud or theft.
“It’s not just SPAA saying SMSF trustees have legal options; the (ATO website quite clearly states this is the case.” To quote the ATO: “SMSF trustees do have certain rights and options available to them if their fund suffers a financial loss due to fraudulent conduct or theft.
“For example, SMSF trustees can choose to take legal recovery action against a person or persons who engaged in the fraudulent conduct or theft. Under Corporations Law, if the trustees received advice or services from an Australian Financial Services Licensee who was involved in the fraudulent conduct or theft, legal options are available.
“SMSF trustees may also approach the Financial Ombudsman Service (FOS) if the trustee’s adviser, or other service provider involved in the fraudulent conduct, is a member of FOS. However, access to these legal options gives no guarantee that the fund will be compensated for fraudulent conduct or theft. Depending on the circumstances the fund may receive no compensation or limited compensation.”
Slattery says this view from the ATO reflects SPAA’s long-held stance on this issue. “SMSFs do have legal options, but they are fewer than those available to the APRA-regulated sector. And they don’t guarantee a successful outcome.
“The problem is most of the discussion about SMSF compensation only focuses on the option of government compensation and makes no mention of the broader legal options that are available to SMSFs,” she says.
Slattery said the information recently released on the ATO website is welcomed because it is not just a discussion about the limitations of government compensation.
“It also covers off the broader range of compensation options often available to SMSF members,” she says.
Slattery also addressed ASIC’s recently raised concerns about SMSFs being oversold by some advisors and statements to the effect that investors with less than $100,000 are being pushed into SMSFs.
“This is simply not supported by the statistics. The most recent release of the ATO’s “SMSF statistical overview” (2009-10) shows the average and median balance of an SMSF member trending clearly upwards since 2006.
“The report also shows that the percentage of SMSFs with balances under $50,000 has declined from 11% in 2006 to 6.8% in 2010. These statistics suggest there is no systematic issue here.”