Considering an SMSF? It’s no longer a good option for many people

There are also highly visible consultants who run aggressive, cookie-cutter businesses that feature social media, “masterclasses” and incessant advertising. Many have sleek offices, flashy publications and an endless stream of self-congratulations about their “success stories,” often backed by a wall of dubious industry awards.

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They are particularly skilled at appealing to middle-aged Australians entering their pre-retirement growth years – people who don’t want to miss out on the next big opportunity, usually men.

I see these campaigns all the time. I’ve even signed up for a few to see what happens next. Its marketing is slick, its sales funnel is perfectly designed to draw you in. To the average person looking for better returns, it probably looks professional and convincing.

It looks legitimate enough from the outside. But ASIC’s review cut through the hype and showed what’s really going on: Some advisers are churning out almost identical advice like a production line.

Clients are told to set up an SMSF, transfer their superannuation funds from a large fund (which could have a long-term return of 8 to 10 per cent), buy a property or other investment managed through a relevant asset management company and watch their wealth “grow”.

This is a nicely repeatable business model for the advisor and its parent company, but this is not a personal recommendation. It’s a production line and incredibly profitable.

ASIC also stated this. Its report highlights advisers posing as order takers, approving SMSFs that were never suitable in the first place. These are not minor mistakes; these are systemic failures.

It doesn’t end with consultants either. ASIC found SMSF auditors were also part of the problem, taking action over dozens of breaches of independence, poor oversight and failure to meet professional standards.

Ownership seems to be the biggest factor behind most of the bad advice, but that wasn’t the only area of ​​concern. In 57 of the 100 cases ASIC examined, the SMSF involved a direct purchase of property and in a further 50 cases it involved a borrowing arrangement. ASIC also warned against advisers recommending investments affiliated with their own firms.

Now other layers of risk are emerging. The first is the growing attractiveness of private credit as an asset class. The playbook feels eerily familiar, as if it came from an era decades ago.

Convert your retirement fund into an SMSF, accelerate your investments and move the money into a property development or mezzanine loan fund that promises stable, double-digit returns.

On paper and at a Saturday barbecue, it sounds “professional level”. In reality, it’s often the same high-risk strategy, repackaged for a new cycle, with rivers of money flowing in the form of fees from the back room at each step.

At the same time, many wealth firms are expanding beyond advice into wealth management; manages its own funds and investment vehicles. This means that the advisor recommending an investment may also work for or have a stake in the asset management company managing it.

This is a model that blurs the line between recommendation and product promotion, creating conflicts that need to be acknowledged and managed. ASIC’s report made this point clear: advisers must put their clients’ interests above their own or those of their licensees.

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The truth is that SMSF is no longer right for most people. The dominant usage now tends to fall into two camps: business owners who want to buy their properties and rent them back to themselves, and investors who pursue high-risk-oriented strategies.

For everyone, the costs, complexity, and risks often outweigh the benefits. And frankly, there are simpler options on well-managed retail platforms now available and used effectively by advisors to access good investments.

When you add in fund set-up fees, property syndicate commissions, ongoing admin costs, auditor fees and asset management fees, it’s easy to see why ASIC says SMSFs may be more expensive than people think. The cost-to-return ratio can be disastrous, especially for smaller balances.

So, for ordinary people who are easily swayed by the promise of making more money, what can you do to avoid falling into formulaic advice and the SMSF model?

1. Ask questions early and be careful. Be careful if someone suggests an investment approach early in your relationship. This is usually a sign that you’re gearing up for a cookie-cutter sale. A good advisor should start by understanding you: your goals, your lifestyle, your balance, and your comfort with risk. If they jump straight to products or strategies, that’s your first red flag.
2. Follow the money. Let’s see if they have a “standard” approach, is the same investment solution offered for everyone? Then check who gets paid and how. Is your advisor (or its parent company) affiliated with the recommended product, platform or property? The Financial Services Guide (FSG) will tell you, and if it’s hard to find, hard to read or full of jargon, that tells you something too.
3. Don’t be fooled by marketing. Flashy videos and “special deals” are designed to create urgency and FOMO. Real financial advice should slow you down, not speed you up.
4. Compare costs. SMSFs can be expensive. Ask for a clear comparison between your current pension fund and the SMSF option, with all fees included. If it doesn’t save you money or offer real flexibility, walk away.
5. Consider your insurance. Many people lose valuable life or disability insurance when they leave an industrial or retail fund and don’t realize it until it’s too late. Make sure you understand what protection you are giving up.
6. Remember: control is not always freedom. Having an SMSF does not automatically mean you are “in control” of your money. This means you are legally responsible for compliance, investments and results. Make sure you really want this job. There are now even consultancies that specialize in untangling SMSFs for people tired of this complexity.

Finally, if you are considering an SMSF, read this carefully. Coming directly from ASIC:

“SMSF trustees should be aware of the costs, responsibilities and risks involved. People moving their superannuation from an APRA-regulated fund to an SMSF also lose important protections, including the benefits of prudential regulation and the ability to complain to AFCA about the fund or trustees.”

This is a powerful reminder that “control” can come at a cost.

To the good counselors out there – please speak up. Cowboys are giving you a bad name and you don’t deserve it. Close featured funnels, talk openly about what good referrals look like, and help us help consumers find that referral even if you don’t have the capacity to take on that referral right now.

For the rest of us? Stay curious, ask questions, and find mentors through your own trusted networks and circles. This is still the best defense against bad advice.

Bec Wilson is the bestselling author How to Have an Epic Retirement and new releases Prime Time: 27 Lessons for the New Middle Life. Writes a weekly newsletter epicretirement.net and hosts prime time podcast.

• The advice given in this article is general in nature and is not intended to influence readers’ decisions about investments or financial products. They should always seek their own professional advice, taking into account their personal circumstances, before making financial decisions.

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