Complaints related to self-managed super funds (SMSF) have risen at double the rate of other products and advisers have just a 26% chance of successfully defending them.
Risk management firm, Fourth Line, conducted a survey of 1,100 complaints to the Australian Financial Complaints Authority (AFCA) between 2012 and 2020, around 12% of total complaints.
SMSF complaints now made up 91% of all superannuation complaints and had risen at double the rate of other products. This could be largely attributed to property and limited recourse borrowing arrangements (LRBA) complaints.
Total SMSF complaints paid were $22,355,106 with an average complaint payment of $160,828.
“The chance of successfully defending a complaint is well below the 2012-2020 AFCA average (26% v 36%) and the average size of the complaint determination is well above the average ($160,828 v $104,898).
“There has been a significant increase in SMSF complaints determined in recent years and they now make up approximately two-thirds of all complaints determined. This could be due to the increase in the use of SMSFs in the last 10 years accompanied by increased SMSF investment into property.”
When the data was broken down further, the possibility of defending a complaint about inappropriate SMSFs fell from 26% to 10%. The total complaint paid was $3,311,932 and the average complaint paid rose to $183,966.
These type of complaints involved low balance SMSFs of less than $500,000, LRBAs for investment properties and financial literacy issues.
“The percentage of SMSF complaints determined has increased significantly in 2020. This may be attributed to:
- Platforms now having access to a greater range of investments reducing the need for a SMSF; and
- Whether a SMSF is appropriate for the clients personal and financial circumstances, common issues include cost effectiveness, financial literacy and fully understands the risks and administrative burden of running a SMSF.
“It is noted that AFCA determinations indicate it will not accept that just because a client wants a particular investment or product using their superannuation that the financial service provider should recommend such a strategy - unless all of the above issues are considered adequately and the advice is appropriate given a clients personal and financial circumstances.”