SMSF advice has figured highly in a report released by the Compensation Scheme of Last Resort (CSLR), with more than 40 per cent of claims received related to personal services in this area.
The CSLR has released its “Impact Report 2024”, covering the period of operations from 2 April to 30 June 2024, which stated it received 139 claims, paying nine of those with compensation totalling $750,293 or an average value of $83,333 per claim.
Out of the 139 claims received off the back of determinations made by the Australian Financial Complaints Authority (AFCA), 120 were linked to investment-related matters, with 65 tied to SMSFs.
The report noted the classification of a claim was derived from the AFCA determination and 59 of the SMSF-related claims were only described as ‘Superannuation – Non Trustee Related’, while of the remaining six claims, two were related to mixed asset property fund managed investments, one to property fund managed investments and three to direct or real property investments.
The report also noted the high number of financial advisers or planners tied to a claim, with practitioners being linked to 97 of the 139 claims, and stated these were typically tied to SMSFs.
“The majority of claims received by the CSLR have related to personal financial advice provided by financial planners, specifically in relation to SMSFs. This accounts for over 40 per cent of the claims received to 30 June 2024,” the report noted.
“Our initial, and limited, observations indicate when providing advice in relation to the establishment and use of SMSFs, it was common for the financial adviser to fail to properly assess claimants’ existing circumstances before recommending high-risk strategies, often involving significant gearing and concentration risks.
“Advisers frequently did not consider alternative investments that might have met claimants’ objectives better.
“Additionally, advice was often not in the best interests of the claimants, particularly when advisers had conflicts of interest with the products or services recommended.”
Other key issues flagged by the CSLR in relation to personal financial advice were inappropriate linking of SMSFs and borrowing to invest in property, failure to implement a statement of advice, failing to regularly review investment strategies and providing advice without considering personal situations.
