As the federal government considers further reforms to strengthen consumer protections across Australia’s financial services sector, there is a real risk the policy debate is drifting away from where the harm actually occurs.
If we are serious about protecting consumers, then we must be equally serious about accurately identifying the source of consumer harm. Poorly targeted reform not only fails to solve the problem, it can also undermine confidence in Australia’s superannuation system.
The SMSF Association has consistently urged government to focus reform efforts on the true drivers of harm: conduct failures, misaligned incentives and governance breakdowns. In our recent submissions to Treasury on the Compensation Scheme of Last Resort, lead generation activity and enhanced member protections, we have called for a coordinated, system-wide response that addresses these root causes rather than the structures through which consumers ultimately hold their investments.
At the centre of the debate is a simple but important distinction: SMSFs are not the problem.
Recent failures have exposed weaknesses in lead generation practices, advice supervision, product governance and regulatory enforcement. These are the areas where reform must be directed. If we restrict structures or limit consumer choice without addressing those underlying failures, we do not fix the problem, we simply shift it.
Evidence from recent cases shows a consistent pattern. Consumers are frequently influenced early through unregulated or poorly regulated lead generation activities and then directed through conflicted or inadequate advice into inappropriate investments. By the time a superannuation vehicle is chosen, or an SMSF is established, the critical decisions have already been made.
That reality matters because it highlights a growing risk in current policy thinking: conflating misconduct with the structure through which investments are ultimately held.
Consumer protection is not strengthened by applying broad, uniform constraints across the system without regard to where harm actually arises. It is strengthened when accountability is placed squarely on the participants whose conduct created the harm in the first place.
It is also important to recognise SMSFs are a long-established and well-regulated part of the country’s superannuation system, supporting more than 1.2 million Australians. In many of the recent cases that have attracted regulatory attention, SMSF trustees have not been the source of misconduct but have been among its victims. Treating them as the problem risks misdiagnosing the issue and diverting reform away from where it is genuinely needed.
Member protection and member choice are not competing objectives. A well-designed reform package can and must deliver both.
That is why the SMSF Association supports strong and targeted reforms, particularly in relation to harmful lead generation practices, conflicted remuneration structures and product governance frameworks. In particular, high-risk lead generation activity that materially influences consumer decision-making should be brought clearly within the financial services regulatory perimeter, with appropriate licensing, supervision and accountability.
Equally there is a need for stronger enforcement of existing obligations alongside targeted reforms to close genuine regulatory gaps that have emerged over time. Regulation is only as effective as its enforcement.
In relation to compensation frameworks, responsibility must also be correctly aligned. SMSF investors who suffer loss as a result of poor advice or product failure are the victims of misconduct, not the cause of it. Any framework that seeks to shift costs onto those consumers, or limit their access to protection, fundamentally mischaracterises the problem it is trying to solve.
Importantly, these policy areas cannot be treated in isolation. Lead generation, financial advice, product governance and compensation settings are interconnected parts of the same system. If reforms are developed separately, there is a real risk of duplication, cost shifting and unintended consequences without addressing the underlying causes of harm.
The focus of reform must therefore be prevention, not simply redistribution of losses after the fact.
We need earlier intervention, stronger enforcement and clearer accountability so that large-scale consumer harm is prevented before it occurs.
The objective is clear. Consumer protection must be strengthened. But the path to achieving that outcome matters. If we get it wrong, we risk undermining the very system we are trying to protect.
Ultimately the principle should be straightforward: target misconduct wherever it arises, preserve legitimate consumer choice and maintain confidence in a superannuation system millions of Australians rely on.
