Superannuation Fraud: How to protect your SMSF from fraudsters

Due to their popularity and there being over AU$400 billion in assets owned by self managed superannuation funds (SMSFs) it is not surprising that they are often the victims of superannuation fraud, investment fraud and sometimes just dodgy advice!

This article will provide practical and common sense tips to ensure your SMSF is protected from superannuation fraud.

Protect your details

Do not give your SMSF bank account details (BSB and Account Number) to unknown parties or send it via email – don’t even email it to your accountant!  Crime gangs can use your bank details to illegally empty the cash in the account.

Protect your identity. In most cases of superannuation fraud the perpetrators need your identity to access your monies or investments.  This means you must keep details such as your full legal name, date of birth, photo and signature as secret as possible.  This means do no simply throw documents with this information in the rubbish – if possible shred it or burnt it or otherwise make it unusable.  Another common way criminals access your personal information and investments is via mail theft.  Either secure your mail box or rent a post office box.

Protect yourself online.  Right now your computer may have a virus that is slowly collecting your personal information and sending it to who knows where. You must ensure you have a good quality (paid for) virus protection and internet security program that you allow to update and undertake regular scans – don’t cancel them halfway!

Similarly, look out for ‘honey pots’.  These are fake free wifi hotspots set up at locations frequented by tourists and travelers. Never trust a free wifi hot spot overseas – they’re used to capture your details while you innocently check Facebook or login to your internet banking! Once your personal details are in the hands of hackers they’re often sold on the dark web and purchase by people looking to perpetrate superannuation fraud.

Disregard and unsolicited offers via mail, phone or email that offer to purchase shares your SMSF owns.  These letters look legitimate however the actual price they pay is well below market value – which is how the fraudsters make their profit.  This type of fraud has been going around for years and unfortunately it is typically the elderly or unsophisticated that fall victim.

Be mindful of cash and bank account access

Always have more than one signatory required to make withdrawals and to write cheques (or don’t use cheques at all!).  If there are two people as trustees of the SMSF – ensure both have to sign or authorise any transactions above a certain amount.

Even if you trust your partner / co-trustee explicitly their signature could be obtained and forged.  I recently saw a case where one member of an SMSF absconded with $900,000 of the SMSFs money – the majority of which was funding her husband’s pension.  This would not have happened if the account required both signatories.  Be aware that superannuation fraud can also be committed to those close to us.

Get rid of the cash.  Cash sitting in a bank account is a lot more vulnerable compared to other types of investments such as shares and managed funds.  If you invest via financial planner your funds should be even more protected from superannuation fraud as none of the investments can be sold or cashed out without the planner being informed or the details confirmed.

Watch out for the ‘white shoe brigade’

The overwhelming majority of financial planners (99%+) are honest and do not put their own interests above those of their clients.  However there are the extreme minority that do – and unfortunately they are sometimes hard to spot. They may have the same qualifications as real planners, dress in a nice suit and drive a nice car – however they are simply ‘spruikers’ selling whatever investment gives them the best commission.

The only way to spot these guys (or girls – but most seem to be men!) is to read the details and always be a little paranoid.  If they give you a PDS (Product Disclosure Statement) or a SoA (Statement of Advice) you need to carefully search for the details regarding how much commission they are getting paid.  If it is 7% or more chances are they are simply there to make a quick buck and they don’t give a damn about your financial well-being.  Although it’s technically not superannuation fraud, it’s can have a similar devastating impact.

This is what happened with Westpoint and other property trust investments which are now worth a fraction of their original value and typically with the investors’ capital frozen to boot. Chances are there are other investments out there being sold at the moment that have the same potential to go bad – one of the only ways to spot them is via the level of commissions they pay.

Another common way SMSF investors loose their retirement nest egg is through dodgy investments that are typically scams.  These type of investments offer huge returns with little risk.  Chances are if it is too good to be true – it probably is.They may simply be a cleverly disguised ‘ponzi’ scam which uses the capital of investors to fake high income returns, where in fact it is the original capital that is being eaten up. Unfortunately these scams or dodgy investments always seem to be based in my home town of the Gold Coast.

The only way (apart from common sense) to detect these scam investments is to do some research.  Do a quick Google search on the investment and also the operators (the individuals promoting it) and see what you can find.  Also contact a financial planner and ask if there is any research material available for the investment.  If there is no available research available chances are it will be a very speculative investment – that is assuming it is not down right fraudulent.

I have seen too many SMSF trustees loose their hard earned capital through poor investment choices that stem from a lack of financial education.  Although, superannuation fraud often hits more sophisticated investors too!

If you have any questions please get in touch. ASIC’s MoneySmart also has some good information on Super Scams.