SMSF sharks are circling property investors: AIST

The self-managed super fund “sharks are circling”, according to Tom Garcia, chief executive of the Australian Institute of Superannuation Trustees.

Get rich quick schemes from unregulated property spruikers, as well as the ability to borrow in SMSFs was creating a dangerous situation which could lead to a failure in the financial sector, Garcia told The Weekend Australian.

"Someone's probably working on it now,” he said.

The $500 billion SMSF sector now represents one third of the superannuation industry in Australia but Garcia says many of those investors simply don’t understand the risk they are getting into and fail to diversify.

"Most people don't know their ability to cope with risk until they experience an adverse outcome, by which time it may be too late,” he said.

"It is not well understood that an SMSF trustee has a fiduciary duty to act in their own best interests to provide for their retirement.

"By law, SMSFs are required to have a documented investment strategy.

"While it is up to trustees to determine this strategy, it's generally agreed that a diversified investment portfolio will provide the best outcome, both in terms of risk and return. We would caution against an SMSF being invested in a single asset class such as domestic property.

"SMSF trustees need to be aware that in pension phase there is a legislated level on income that must be drawn down that increases as they age.

"A risk of being heavily weighted into a single, relatively illiquid asset like domestic property is a possible forced sale due to pension income requirements which could produce a lower capital return on the investment.

He says the dangers of SMSF schemes mean many investors will be stung and will have to rely heavily on the pension scheme.

"While we don't represent SMSFs, we recognise they have a legitimate role to play in our super system and it would be a problem for all taxpayers if SMSFs were to fail through bad investment advice, resulting in disappointed super investors having greater reliance on the age pension," he  said.

"If that happened, more retirees will be dependent on the age pension and more people will lose confidence in the system, as we saw with the collapse of Storm Financial and Westpoint.”