Parliament told: Don’t bail out bad SMSF decision-makers

Self-managed superannuation fund (SMSF) trustees should not be given access to an industry-funded compensation fund to bail them out of bad decisions, according to the SMSF Owner’s Alliance.

In a submission to the Senate Economics Committee review of Consumer Protection in the Banking, Finance and Insurance Sector the Alliance has urged that SMSF trustees be made to accept legal responsibility for all their investment decisions, “including those that turn out not have been made wisely”.

The submission said the alliance fully supported the Australian Securities and Investments Commission’s (ASIC’s) efforts to crack down on property promoters giving investment advice when they were not licensed because just like any consumer of financial services, SMSF trustees should be protected by law from unscrupulous and dishonest promotion of investment schemes.

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“However, this does not absolve trustees from responsibility for their investment decisions, even if they are based on poor or dubious advice,” it said, pointing to the Australian Taxation Office (ATO) trustee declaration form within which SMSF trustees declare acceptance of their obligation to “exercise skill, care and diligence in managing the fund” and to “act in the best interests of all of the members of the fund”.

“So trustees must accept legal responsibility for all their investment decisions, including those that turn out not to have been made wisely,” the submission said.

“It may be suggested to the committee that a fund be established to compensate people who have been encouraged to set up a self-managed fund to make a leveraged investment and who have suffered financial loss as a result,” it said. “We would disagree with any such proposal. It would clearly be a moral hazard as people could make an unwise investment decision knowing they would be compensated if it went bad.”

“If such a compensation scheme were to be funded by a levy on all self-managed funds it would amount to penalising the great majority of trustees who manage their funds well to bail out the small minority who make unwise investment decisions.”

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