Illegal early access tipped to surge with market volatility
One industry lawyer has cautioned SMSF professionals to be “on guard” for increased incidents of illegal early access among trustees, since recent market volatility may see a repeat of the types of behaviour seen during the GFC.
Speaking to SMSF Adviser, Argyle Lawyers managing principal Peter Bobbin said the GFC caused many people to suffer personal lifestyle cash flow problems, with some trustees unable to resist illegally accessing their SMSF cash, particularly given the ease of accessibility.
“What the GFC did for some people is it created disaster – financial disaster – and in panic, people just used cash [from their SMSF],” said Mr Bobbin.
With the recent stock market routing, this may occur again, he warned.
“One of the things that the GFC has taught us to now expect, although one hopes it is on a much smaller scale, is that we may have clients who are illegally accessing their super, so professionals need to be on guard for that.”
A prime example of where this can happen is where an SMSF trustee has a negatively geared portfolio and there are calls on the gearing part of their investment and the trustee then scrambles for cash.
“In my professional services, I’ve certainly come across people, SMSFs, that have borrowed to acquire, and the underlying asset has gone south in value,” he said.
“We may [also] get a variety of businesses that have, and possibly may continue to fail, as part of the stock market routing, as just a natural follow-on.”
Mr Bobbin also predicts that the routing of the stock market will see poor returns for either the 31 December 2015 statements or 30 June 2016 financial statements of APRA-regulated funds, which will subsequently see a spike in the number of SMSFs.
“This is something that happened immediately after the GFC and for a few years afterwards,” he said.
“The 31 December year-end statements that people get, and they’ll probably get them in about March, may show very poor returns and as it did post the GFC. I can see that it will reinvigorate people’s interest in doing it themselves.”
It is lucky for the APRA-regulated funds, Mr Bobbin said, that the stock market routing did not happen prior to 1 January.
“The Australian stock market has dropped seven per cent, and international markets have also taken a dive. That can wipe out the whole of any return for the whole six-month period,” said Mr Bobbin.
Miranda Brownlee is the deputy editor of SMSF Adviser, which is the leading source of news, strategy and educational content for professionals working in the SMSF sector.
Since joining the team in 2014, Miranda has been responsible for breaking some of the biggest superannuation stories in Australia, and has reported extensively on technical strategy and legislative updates. Miranda has also directed SMSF Adviser's print publication for several years.
Miranda also has broad business and financial services reporting experience, having written for titles including Investor Daily, ifa and Accountants Daily.