The SMSF sector has found itself at a crossroads as it weighs up how it can continue to grow while also lifting standards to make sure it is being used by the appropriate parties.
During the opening breakfast of the SMSF National Conference, leaders in the SMSF sector discussed how the sector can help mitigate risks for an industry responsible for $1 trillion worth of retirement money tied to tax concessions.
What wasn’t lost in the conversation is how the misconduct is now having to be underwritten by advisers via the Compensation Scheme of Last Resort.
Heffron managing director Meg Heffron said there was a “difficult nuance to strike”, noting that while the SMSF sector should be part of helping drive solutions, it shouldn’t be guilty by association.
“I get nervous when we attach high incidence of complaints and things about schemes that include an SMSF as an SMSF exclusive problem,” Heffron said.
“It is the vehicle of choice for people who are doing dodgy things. I’d be reluctant if we as an industry let that translate into SMSFs are the problem as opposed to dodgy people are the problem.”
In FY26 levy data revealed by the scheme in late January, it was shown that 92 per cent of compensation will be paid out to victims of Dixon Advisory and United Global Capital – both firms that relied on a conflicted advice model involving SMSFs.
Furthermore, both these failures will feature heavily in the projected FY27 levy, which CSLR chief executive David Berry told the Professional Planner Advice Policy Summit last week in Canberra would be over $120 million.
Inappropriate advice and poor diversification in SMSFs has long been a core issue found in AFCA determinations, and now with many of those falling to the CSLR the industry finds itself in a position having to underwrite those failures.
Financial Advice Association of Australian CEO Sarah Abood agreed the issue was the people making decisions about the underlying assets rather than the structure of an SMSF at fault.
“If we’re seeing something blowing up…certainly in the case of Dixon Advisory, the SMSF was the structure that was used, but the issue was caused by the US Masters Residential Property fund blowing and sending the whole thing over the cliff,” Abood said.
In an address to the conference later that day, SMSF Association CEO Peter Burgess threw the association’s support behind ending ‘but for’ AFCA determinations – where the external dispute authority rules in favour of the client despite no capital loss.
This issue has come to the fore during debate over the sustainability of the CSLR which estimates around 80 per cent of claims it is compensating for are ‘but for’ determinations.
Reform of the CSLR is expected regardless of who the minister is after the impending federal election, with both Minister for Financial Services Stephen Jones and his shadow counterpart Luke Howarth having both supported ending the provision being used for CSLR payments.
Different problems require unique solutions
Poor advice through SMSFs present one challenge for the broader advice ecosystem, but for the SMSF sector that is continuing to work on growing while maintaining legitimacy, the breakfast heard how there are multiple issues requiring different solutions that get misconstrued and lumped together.
These can include issues where SMSFs are used as a vehicle for a scam or product failure, but also trustee driven ones where they have the intention of avoiding early release of superannuation conditions to illegally withdraw money early.
“We almost need different solutions for each of those buckets but because we talk about them collectively as money leaving the sector inappropriately, we risk a response for this problem being applied to this group of people,” Heffron said.
“If we’re to be part of the solution we have to be very careful about which one we’re talking about.”
Burgess said the SMSF sector can’t solve these issues alone, noting it’s part of a much broader financial services ecosystem.
“There’s certainly things we can do within our own industry to reduce the risk of some serious things happening but when you look at things like illegal early access, we can’t solve that problem on our own, we need the banks and others to come into play,” Burgess said.
Heffron said there was likely some merit in having barriers to entry to setting up an SMSF that would involve some educational competence.
“I’ve been resisting that for 27 years, but I must admit I’m starting to wonder whether there should be,” Heffron said.
“Is it such a bad thing if every trustee has to do a bit of education about what’s involved in running a fund? I will have resisted that for years…I don’t think it would be such a bad idea to give that a go.”
Confluence of ASIC reviews
ASIC announced last year at the conference it was conducting a review into licensed advice given on SMSFs, and ASIC senior executive leader for financial advice Leah Sciacca told the conference on Wednesday afternoon how the review will focus on the quality of advice provided since the release of Info Sheet 274, which outlines the expectations for giving advice on SMSFs.
“As part of this work we’re reviewing client advice files to assess compliance with the best interest duty and related obligations,” she said.
“We’re also reviewing information about licensees of their oversight and the application of their policies and procedures in the context of the establishment of SMSF advice.”
The findings, which will be due in the second half of year, will come as the regulator ramps up enforcement of high-pressure sales tactics that incorporate financial advisers, which often involve using the SMSFs for illicit activity.
“In May of last year, we warned consumers to be wary about high pressure sales tactics and online clickbait advertisements being used to lure consumers into receiving inappropriate superannuation switching advice,” she said.
ASIC had warned the industry they had observed considerable volumes of super fund rollovers into an SMSF that involved telemarketers generating lead lists to be then passed onto advisers.
“These advisers then recommended consumers roll over their superannuation savings from their existing fund and invest – sometimes via an SMSF – into high-risk investments,” she said.
“This can result in significant erosion or complete loss of a person’s retirement savings. While there is often a complex group of entities and individuals involved, appropriate or poor-quality advice typically played a role in the ultimate consumer outcome.”
ASIC released Info Sheet 282 last May which outlines how financial services laws apply to unlicensed entities, as well as obligations to AFSLs that receive consumer details obtained through unsolicited contact.
“The information sheet makes it clear that these entities must comply with financial services. If they don’t, they risk significant penalties,” she said.
The suggestion that SMSFs are inherently problematic is a misleading narrative that both the Super Members Council (Industry Super lobby) and some within ASIC continue to propagate. The reality is that there are ample laws in place to hold accountable those engaging in misconduct through SMSFs. The issue is not with the structure itself but with enforcement failures.
Dixon Advisory provides a perfect case study. While SMSFs were involved, the root cause of the failure was a blatant breach of the best interests duty and the conflicts priority rule—obligations that have been in place since 2014, replacing the previous “reasonable basis” requirement. Dixon’s practice of allocating up to 75% of clients’ SMSF assets into its own related products was already a contravention of existing laws, and ASIC was made aware of these issues as early as 2015 but failed to act. Preventing such failures does not require new laws; it requires robust enforcement of the laws that already exist.
It is encouraging to see the Financial Advice Association of Australia defending the SMSF structure. The Compensation Scheme of Last Resort (CSLR) must also be reformed, particularly its application of ‘but for’ determinations, which are unjustifiably broad and extend beyond the scheme’s intended purpose. The CSLR is not, and should not be, a de facto “return” protection mechanism—especially not for high-net-worth SMSF investors.
The issue that remains unaddressed is the conduct of property groups engaging in unlicensed financial product advice. These entities “influence” potential investors into establishing SMSFs with the assistance of accountants who “just set them up” without advice. ASIC has yet to find an effective regulatory response to this gap, and this is where intervention is actually needed.
Finally, trustee education may have merit as long as it remains proportionate, practical, and not weaponised by anti-SMSF advocates to introduce unnecessary friction into the setup process. Any such initiative must be designed to empower trustees rather than to deter individuals from choosing an SMSF structure.
SMSFs are not the problem. Misconduct should be addressed through proper enforcement, not by undermining a legitimate and important retirement savings vehicle.