Increased SMSF obligations in wake of Trio Capital have no basis
Amid the fall-out from the collapse of Trio Capital has come the suggestion that financial planners should be required to warn clients establishing self-managed superannuation funds (SMSFs) that they are entering a higher risk environment than that which pertains to funds regulated by the Australian Prudential Regulation Authority (APRA).
Under questioning during Senate Estimates last month,Australian Securities and Investments Commission (ASIC) commissioner John Price suggested that the regulator’s surveillance of financial planners had indicated that clients entering into SMSFs were not being appropriately warned of the risks of theft or fraud.
Price then added that, of course, financial planners were under no statutory obligation to provide such a warning.
Price’s answers to the Senate Estimates committee were being given the context of the collapse of Trio Capital and the fact that SMSF trustees did not have access to the same compensation which was provided to members of a number of APRA-regulated funds.
That compensation was paid for via a levy raised against other APRA-regulated funds.
But the very fact that both SMSFs and APRA-regulated funds were caught up in the Trio collapse should stand as evidence that both sectors were exposed to equal risk – with the only difference being that one sector had access to an industry-financed compensation scheme.
Contrary to the assertions of the Minister for Financial Services and Superannuation, Bill Shorten, the SMSF trustees who suffered losses as a result of the Trio collapse were not “swimming outside the flags” – far from it.
They were, in fact, swimming on a patrolled beach where the lifesavers in the form of ASIC and APRA had dozed off.
While it is to be hoped that any thorough financial planner would point out to a client that SMSFs are not covered by the same compensation arrangements as APRA-regulated funds, there would seem to be no prima facie reason for either the Government or the regulators to impose a particular obligation on planners to suggest that SMSFs are any less safe than APRA regulated funds.
In fact, those suggesting that such an obligation should be imposed might care to reflect the degree to which the superannuation balances of members of the MTAA Super Fund were undermined by poor decisions and for which they will not be compensated.
Rather than seeking to impose yet another obligation on planners, the Government and the regulators would be better served examining ways in which the compensation available to members of APRA-regulated funds can be equitably extended to SMSF trustees.
Of course, this should all be done at the same time as recognising that the collapse of Trio Capital was the result of blatant fraud rather than any particular failings on the part of financial planners.
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