(03) 9020 2905PORTFOLIO POINT: Could you become a target of a super scam or SMSF fraud? Your SMSF is not safe. Here’s what to look out for.
Bees and honeypots. Frauds and moneypots. It’s a similarly sticky attraction.
The list of those who have lost wads to fraudsters and scam artists continually grows. Email and the internet has made the whole “Nigerian letter scam” process so much more efficient for offshore crime gangs.
I’m sure Eureka Report readers are too smart for that. The promise of free millions is one thing and is clearly baloney from the first few words of broken English and appalling grammar.
But don’t get too smug.
What if the offers are a whole lot smarter? What if they come from an Australian, whose English is perfect, or a smooth-talking accented English-speaking foreigner, or what seems to be a local businessman, who talks a sophisticated financial language?
They’re out there and they’re targetting you – particularly you freshies, who have relatively recently become trustees of SMSFs.
Thousands of Australians have lost more than $100 million in recent years. And SMSF trustees are becoming an increasingly attractive target.
Too smart to get done? Here’s a fact that should scare the pants off you. The biggest group to be losing the most dough currently is men over 50 with previous investing experience. That could be you.
People are losing anything from a few thousand dollars to, literally, millions of dollars. That could also mean you.
It’s not a stretch to suggest that those who have millions to lose, have a reasonable, in-built, fraud detector. But they’re still getting done. And that could be you.
And worst of all is what should concern SMSFs trustees the most. You not only have very little protection against fraud. But the fraudulent act – potentially even if you didn’t knowingly participate – could, in many cases, can open you to fines, prosecution and even jail.
Boiler rooms
These are cold calls from well-versed sales people who aim to get you to invest in a company that is inevitably shooting the lights out.
They talk like stockbrokers. But unlike stockbrokers, they are only ever pushing the one stock. A stockbroker should be happy to sell you anything. Not these guys, which should be a warning sign of its own. They’re inevitably operating from offshore.
Bogus returns and fake websites are manufactered and a pretty compelling story of easy, near guaranteed profits, are outlined. Buy into this story and deposit any money and it’s gone the moment you hit transfer.
Early access schemes
These schemes tend to target people in debt, the unemployed or those with poor English skills.
It might be a small ad in a newspaper, saying that they can help you with debt by helping you access your super.
The modus operandi is to convince the victim to agree to join a SMSF run by the fraudster. SMSFS can have a maximum of four members, as we know.
They say that if an amount is rolled over to the SMSF, they will take a commission and hand the rest of the super to the victim.
If the victim agrees, usually, they will receive no money – why would the criminal share it? If they do receive any money, they might actually be in bigger trouble for illegally accessing their super before a condition of release is reached, leading to tax fines.
This scam seems to be particularly prevalent in Sydney. While I’m sure it happens around the country, all of the court cases I read seem to come from NSW.
Property-based fraud schemes
ASIC has warned regularly on unlicensed operators in the industry over property investments.
This is one of the hardest ones for authorities to do much about until it’s too late. It’s often such a small operation and potentially very private.
Money is collected from victims (SMSFs and non-super) for investment in a property development scheme. The money is transferred to a business account of the operator. Money is never seen again.
But it’s not just that. Be aware of unlisted property funds. The smaller, the more difficult. See below about investment operators needing to act under various licensing arrangements, including having an Australian Financial Services Licence (AFSL).
And the regular threats
Bank accounts can be drained quickly in the event of security being compromised. SMSF trustees should make sure that they do the things that apply to everyone alike.
Don’t share your banking details with anyone, not even your accountant, and particularly not by email.
SMSFs have little legal protection
When it comes to super, SMSF trustees are not only holding onto the biggest risks, but are also the least protected legally.
SMSF trustees are, according to then Superannuation Minister Bill Shorten, “swimming outside the flags”. When you decide to go it alone with a SMSF, you get to take the risks you want to take for the returns you’re like to chase. But with that extra reward comes a greater risk and less protection.
The best example of this in recent years was the Trio Capital/Astarra fraud. From the outside, it just seemed like a regular managed fund, with the usual “insert point of difference” sales pitch. About $176 million was lost.
Those who had their money invested through APRA-regulated funds (industry, corporate, government and retail funds) got their money back, via a levy on the industry.
About 300 SMSFs, many of whom were 100% invested in the fraud-struck funds, got nothing.
APRA-funds have protection. SMSFs do not. And, to be honest, I don’t think they should. By starting or joining a SMSF, you are taking on the role of investment manager. That’s your call. But it’s up to you to make the relevant inquiries into the strength, or otherwise, of your individual investments. If that’s not a risk you wish to take, then stick with an APRA fund.
So how to you protect your SMSF?
Can you fraud-proof your SMSF? The real answer is, actually, no. Fraud can come from anywhere. Even another member of your fund. If you think that one spouse has not committed fraud on another spouse in a SMSF, you’d be sadly mistaken.
If you’re the only member, then you’re still not safe. You can still be done by, potentially, anyone.
Most often fraud comes from greed. If you are constantly of the belief that you can get excess returns from investing in non-standard investment options, then you’ll always potentially be open to an offer from left field of something that sounds like it has a bit, or a lot, better potential for return than the average.
It’s a horrid cliche and I hate using it, but it simply can’t be faulted: “If it sounds too good to be true, it probably is”.
I don’t know what percentage of frauds are based on greed on the part of victims. But it would have to be a considerable number, most likely way more than half. Excess returns are theoretically possible, certainly. But the risk that comes with them is the trade-off.
The rest of the following “good advice” comes a distant second to that rule. And many are still actually based on that premise in any case.
Don’t take cold calls on investment: There’s a reason that the phrase “cold calling investment scams” are four words that belong together as another cliche. Have you ever heard of a happy ending to cold call offering an investment opportunity?
Protect your data: Your bank account details and logins are the key to your security in a SMSF. They can’t be shared under any circumstances. Bank accounts are pretty easy to clean out.
Consider double locking the doors: It might make things a little more difficult from an administration perspective, but it can massively reduce potential fraud on bank accounts and investments by insisting on two trustee signatures for transactions.
Never trust a website: Websites are easy to fake, or make exceedingly impressive. If you get directed to a website that looks as flashy as one you would find from any big company, don’t let that be the end of your research. They’re easy to set up and easy to make incredibly slick.
Research and registrations: Does the company offering the investment opportunity have an Australian Financial Services Licence (AFSL)? Well, they have to in order to offer investments. Do they offer a Product Disclosure Statement (PDS)? Are they registered with ASIC?
Ask a professional: No matter what the opportunity or how good, or legitimate it sounds, unless it is investing in a household name, get someone with some investment credentials (a financial adviser, for instance) to run their eyes over it.
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The information contained in this column should be treated as general advice only. It has not taken anyone’s specific circumstances into account. If you are considering a strategy such as those mentioned here, you are strongly advised to consult your adviser/s, as some of the strategies used in these columns are extremely complex and require high-level technical compliance.
Bruce Brammall is director of Castellan Financial Consulting and the author of Debt Man Walking. E: bruce@castellanfinancial.com.au