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SMSF compensation raises ‘moral hazard issues’

SMSF compensation raises ‘moral hazard issues’

Elyse Perrau
22 April 2014

An SMSF compensation scheme would raise "moral hazard issues", with trustees potentially not investigating what might be an “appropriate or inappropriate investment”, according to the SMSF Owner’s Alliance (SMSFOA).

Speaking at the Morningstar SMSF Trustee Strategy Day in Sydney last week, SMSFOA chairman Bruce Foy said recently there has been a “push” to have a government fund to pay out trustees in the event of fraud.

“Our position is that it would raise moral hazard issues in terms of people then not investigating themselves what might be an appropriate investment or inappropriate investment,” he said.

“We would not instantly warm to that idea…there are a lot of issues to determine with some sort of guarantee, like what [the compensation scheme] would cover and when you can access it,” he added.

“Generally, this discussion is very embryonic in regards to SMSFs; we don’t want to rush into it.”

SMSF Professionals’ Association of Australia director of technical and professional standards, Graeme Colley, said one of the criticisms of the compensation scheme under the SIS legislation is not every fund that applies for compensation gets it.

“In some cases, some funds get it and others don’t… so it is a bit patchy there,” he said.

SMSF compensation raises ‘moral hazard issues’
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