A number of peak industry associations have backed calls by ASIC to give self-managed superannuation fund investors additional disclosure around issues of compensation in the event of theft or fraud.
The Self Managed Super Fund (SMSF) Professionals Association of Australia (SPAA) and FPA both support ASIC’s statement it will ask government to introduce sign-off requirements for investors.
On Tuesday, ASIC chairman Greg Medcraft told a Senate estimates committee that the corporate regulator will engage with government to introduce requirements that would force investors to sign a written document acknowledging a warning that their funds would not be compensated for theft or fraud.
The move follows the collapse of Trio Capital in late 2009, resulting in the loss of more than $100 million in investor funds.
“I think as much as clients need to understand the risk of investments, regulatory change and market risk, they need to understand the regulatory environment of their SMSF,” FPA general manager policy and government relations Dante De Gori told InvestorDaily.
“We absolutely support that, it is good practice and should be something clients do.”
He said that a written document which shows that the investor understands the information would be very effective, especially for those entering an SMSF.
“There is a heightened risk and greater obligation on [SMSF] individuals and I think perhaps a lot of them just don’t realise that,” De Gori said.
SPAA technical director Peter Burgess supports the move but said that he would like to see the issue disclosed as a potential disadvantage of the SMSF within existing publications.
“We’re not against some additional disclosure around that issue. In our view it should be disclosed as a potential disadvantage of the self managed superfund,” Burgess told InvestorDaily.
The way in which the information is given also needs to be considered more accurately, Burgess said.
“I think it’s wrong to say that SMSF members are not entitled to any form of compensation in the event of theft or fraud because they may be able to sue the individual concerned, or, if it is a financial planner they may be able to seek compensation from the dealer group,” Burgess said.
“It’s important to be specific about what we’re talking about.”
There is existing material on the Australian Taxation Office website regarding the advantages and disadvantages of an SMSF, he said.
“We think an appropriate place for [the disclosure] is in those publications to make it clear that a potential disadvantage of a SMSF is that you don’t receive compensation under part 23,” Burgess said.
But he explained that ASIC’s proposed disclosure raises questions about what should be disclosed to Australian Prudential Regulation Authority members who have also been in situations where they have not received compensation in the event of theft or fraud.
“This is not just a SMSF issue, it’s an issue that cuts across the sector. Perhaps that needs to be disclosed as well if we’re going down this track,” he said.
