In its submission to the Senate inquiry into the Dixon Advisory collapse, the Compensation Scheme of Last Resort (CSLR) operator detailed some of the “recurring themes of misconduct” it had identified since the scheme kicked off.
According to the submission, inappropriate advice to use a self-managed super fund (SMSF) to borrow and/or invest in property was the top theme for the misconduct, with 90 per cent of all personal financial advice claims linked to superannuation in some way.
Speaking at the SMSF Association national conference in Melbourne on Wednesday morning, Financial Advice Association Australia (FAAA) chief executive Sarah Abood acknowledged that the SMSF structure was starting to gain a “reputational issue”, leading advisers and licensees to have a “higher bar” to recommend a client establishes an SMSF.
“We have certainly seen a number of the cases that have gone to the CSLR associated with the structure,” Abood said.
“I don’t think you blame the structure; you blame the people who are using the structure for the wrong reasons.”
According to the CEO, the underlying assets that have caused the problem are a far greater concern than the funds being invested through an SMSF.
“If we’ve seen something blowing up the whole firm, certainly in the case of Dixon Advisory, the SMSF was the structure that was used, but of course, the issue was in fact caused by the URF, the US Masters Residential Property Fund, blowing up and sending the whole thing over a cliff,” Abood said.
“So, while we’ve got to recognise that there’s an association there, I don’t think we need to say that it’s the structure’s fault. Advisers do have that in the back of their mind.”
Heffron director Meg Heffron expressed a similar sentiment, arguing that bad actors utilising the structure for “dodgy” purposes is not a reflection on SMSFs as a whole.
“I think, as a sector, when people either get scammed or take money out illegally, that is a problem for us to care about, to engage in and to be part of the solution. I get nervous when we attach high incidence of complaints and things about schemes that include an SMSF as an SMSF exclusive problem,” Heffron said.
“It is the vehicle of choice for people who are going to do dodgy things. I’d be really reluctant if we, as an industry, let that translate into SMSFs are the problem, as opposed to dodgy people are the problem.”
This is typified through the claims reaching the CSLR, Abood added, noting that “without exception” the root cause is the failure of a product.
“It feels like all the attention is around the advice that was given or the structure that was used,” she said.
“We haven’t addressed at all the issue of the assets that were assessed, and those are where the losses are. This, for us, is a huge priority, it’s definitely the number one issue for our members. You need to see that scheme sustainably funded, and in our view, part of that is understanding what’s really causing these failures and addressing the root causes of the failures.”
SMSF Association CEO Peter Burgess added that a regulatory overcorrection to issues of illegal early access to super is a concern for the SMSF sector.
“It’s not our members that we’re worried about, and not their clients we’re worried about, but the regulatory response we may see as a result of this and make it perhaps more difficult for people to have self-managed super funds,” Burgess said.
“That’s why we think we can’t ignore this issue, that we need to look into it and see what we can do to try and reduce that risk.”
I can see what’s happening here. The Government is laying the blame for Dixon’s failure at the foot of the “SMSF Industry”. Surely the best thing to do would be close down all the SMSFs and put them into Industry Funds.
FFS, it’s not the fact they were in an SMSF, it is the fact Dixons got them to open the SMSF so they could then recommend they invest in their own products.
Vertical Integration is the problem!! Get rid of this and 91% of the industries issues go away.
What ever happened to the idea of a trustee exam?
Lets bring in a trustee license, and then remove all consumer protections.
You pass the exam, you know your responsibilities – you stuff it up, you’re on your own. Invest poorly even under advice, too bad.
You’re self managed, manage yourself. No socialising your poor decision making here.
It would also add friction and catch a lot of those non-advice smsf scams too, trustees having to individually pass an module to know full well they cant outsource their responsibility or grant card access to some property spruker then complain to the news.
There should be a guardrail to protect trustees and advisers, which can deter property spruiker too. Even ban lrba that would remove a lot of the sh1t. With tsb and tbc now capping funds I super ditch lrba