The full classic proverb is “the road to hell is paved with good intentions” and that is pretty much how I feel about some of the superannuation reforms specifically relating to SMSFs that Financial Services Minister Daniel Mulino announced in August.

My belief doesn’t apply to all of the items the Member for Fraser flagged during his inaugural address to the Canberra Press Club, but there is one that should raise eyebrows in terms of potentially resulting in unintended consequences.

But let’s look at the “good intentions” part first. The reasoning behind the reforms is to strengthen consumer protections in an effort to prevent people from losing their retirement savings when managed investment schemes, such as the Shield and First Guardian master funds, collapse.

With regard to this sector, the government seems to be hell-bent on stopping the chain of events that would see an SMSF established, the member’s existing super benefits being rolled over into it and then invested into an offering such as the Shield or First Guardian master fund.

No one could argue with this sentiment, however, in the scenario I have outlined, the SMSF is just a vessel and not the core problem of the issue. This in itself could become a problem if Canberra doesn’t understand this fact as it could see the wrong target being sought out as part of the so-called solution.

Mulino put seven proposals on the table aimed at SMSFs, but the one I’d like to single out may already have a cautionary tale attached to it. This is the measure that would see the ATO granted new powers to prevent rollovers to an SMSF if it has any inkling the action hints of fraud, financial abuse, misconduct or potential harm.

The obvious question that springs to mind here is how would the ATO determine if an SMSF set-up and rollover is suspicious. What information would it draw upon to set the wheels in motion to have an establishment and subsequent rollover prevented.

The conundrum takes me back to 2005 when choice of fund was gaining traction and the Australian Securities and Investments Commission (ASIC) was focused on thwarting what could be seen as rollovers out of an incumbent fund facilitated by advisers who were not acting in the best interests of the client.

Back then there was a landmark case where Financial Services Partners authorised representative Brendan Moore was investigated for switching four clients out of an industry fund into a retail offering. This action became problematic because he did not issue a statement of advice to each client in the time required for him to do so. However, a financial services guide was provided at the time.

The industry fund from which the individuals were departing notified ASIC of the breach and Moore was pursued vigorously as a result.

In the end, the adviser had to appear in front of the Hobart Magistrates Court over the issue, but escaped a criminal conviction. It should be noted the clients involved stated they suffered no financial loss from the switch of super funds and were satisfied with Moore’s level of service.

So why was this an issue in the first place? Well, it wouldn’t have been had Moore not been dobbed in by the industry fund. On the surface absolutely no harm was done apart from the incumbent fund suffering outflows to its assets under management from the action of these four members – hardly a serious criminal offence.

But, as I said earlier, this piece of history does provide a cautionary tale for SMSFs with regard to the proposed new powers the ATO will soon have.

What’s to stop an industry fund from flagging a substantial rollover out of its member pool and into an SMSF because it believes there is something untoward about it – no matter how insignificant the bad action might be.

Without knowing how the ATO will identify these transactions and what constitutes fraud, financial abuse, misconduct or potential harm in these scenarios certainly had the alarm bells ringing in my head.

Even if, like in Moore’s situation, the ATO finds upon investigation no compliance enforcement action is required, the process itself may deter any individual from going through with the SMSF set-up and subsequent investment.

You can see how these new powers, if not implemented and monitored properly, could end up being a barrier to entry and may well stifle any future growth of the SMSF sector. Surely this is not the desired outcome Mulino wants from this measure.

And the irony is not lost on me that a super fund switching case back in 2005 could be the red flag for a new policy to prevent superannuants shifting into an SMSF.