In an interview with Ausbiz, Muzier said: “SMSFs give people control over their retirement savings, but with that control also comes full responsibility, and the big ones are really investment risk, the risk of fraud, liquidity risk, and also compliance risk.”
“So, we sometimes see over-concentration, like putting most of the funds in a single investment or a single asset class, and that can create both diversification and cash flow issues,” she added.
“But trustees also need to consider the risk of fraud and governance risk, especially if they rely too heavily, for example, on one party or one provider, or perhaps one platform.”
There are several high-profile cases that illustrate the importance of risk assessment for SMSFs, Muzier said, including the one involving Melissa Caddock.
“With the Melissa Caddock case, she was a financial adviser who essentially just took people’s money and gave them fake investor statements, fake share trading portfolio statements and bank statements, and that case really highlighted the danger of the lack of independent verification that investments actually exist,” she said.
“Anyone can prepare a nice looking investor statement, and in the Caddock case investors, and also to some extent professionals, were relying on the reports they were given without confirming that those investments actually existed.”
She continued that the case involving Australian Fiduciary is a good example of provider or platform risk.
“Even when you’re dealing with licensed entities, things can still go wrong, so trustees really need to understand where their assets are held, who controls them, and whether they are safe with safeguards like an independent custody that could be in place,” she said.
“I think the most important thing is really for trustees to be engaged and just make sure they’re aware of how their investments are structured.”
Muzier continued that ongoing engagement of trustees in their investment strategy is essential including portfolio reviews and consideration of things such as separation of control and diversification.
“Consider investment diversification, and ensure that no single party has unchecked control over SMSF assets. Engage qualified professionals, such as accountants, auditors, and advisers, and make sure that you understand what their goal is, and also what their limitations are,” she said.
“Ultimately trustees remain responsible even when they delegate some of the responsibilities, but a key issue that should be taken into account is to get independent verification of information, and the fact that your investments exist.”
Muzier said if a trustee is using a broker they usually provide reports or grant access to an online portal, but if a trustee holds shares directly, normally they have a holder identification number, with which they should also be able to log in directly with the share registry to see if those investments are actually there.
“You can see prior transactions as well. It’s also good practice to be cautious of high returns, lack of transparency, and pressure to act quickly,” she said.
“There’s a bit of a growth in SMSFs being established, but we definitely also see people where it seems the purpose [of establishing an SMSF] is to invest in property.
“We also see, especially in younger people who make up a large portion of new funds being established, some of them might be priced out of the property market personally and have a reasonable amount in super, and then exploring SMSF as an alternative way to purchase property.”
