Editorials

Green tick for proactive consumer protection

My initial editorial for this publication touched on the continued attacks and criticism, the majority unsupported by fact, aimed at the SMSF sector.

As mentioned then, the topic often at the centre of this noise is the popularity of property investments among SMSF trustees.

While the volume of money channelled from SMSFs toward the property sector, both commercial and residential, is nowhere near high enough to warrant some of the more hysterical commentary it has attracted, it is undeniable the popularity of the asset class has left the door ajar for some unscrupulous product providers in the market.

Too often as a journalist I’m being told about schemes where operators, such as real estate agents or mortgage brokers, are encouraging individuals to establish an SMSF for the sole purpose of acquiring a property within the fund in the name of it being a more tax-effective way of investing in the asset class.

The problem here is that purchasing a property and setting up an SMSF are simply not as aligned as some people, operating purely out of self-interest, would have you believe.

Property of course can be a very rewarding asset to acquire as a source of capital growth and income. But it is only one of many asset classes SMSF trustees should consider when constructing a robust retirement savings portfolio.

And that’s the fundamental issue. An individual should be looking to establish and run their own superannuation fund in order to adequately fund their retirement years, not just to purchase a property that looks good right now.

The strategy of establishing an SMSF just to buy a property right now ignores myriad other important considerations, not the least of which would be the liquidity issues associated with owning just one illiquid asset within the fund.

In addition, running an SMSF is not a set-and-forget exercise. Ongoing compliance is a critical aspect that comes with the territory and one that can be very costly if done incorrectly.

With this aspect in mind, potential SMSF trustees should ask what role the property agent will play in helping them run the fund in the future. I suspect the answer will be no role.

As you can see, this type of opportunistic behaviour could end up costing individuals a lot of money in the pursuit of purchasing a property they like.

This is why the Australian Securities and Investments Commission’s (ASIC) move to stop the alleged unlicensed activity of Park Trent Property Group is a really positive development for the sector (see story page 7).

This is one of the few times we’ve seen the regulator act against a property promoter pitching specifically to the SMSF sector and doing so before a potentially catastrophic outcome eventuates. As such, it is a move that must be applauded.

Regulatory intervention like this can only serve to improve the integrity of the largest segment of the superannuation industry and further silence the critics as more unscrupulous operators are eliminated from the market.

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