Sent: 19-04-2011 11:48:07
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Ministerial Compensation for Small Super Funds
Much was made from Bill Shorten's decision to compensate some APRA regulated funds because of fraudulent behaviour and the law's inability to provide any coverage to Self Managed Super Funds.
Shorten noted that if SMSF investors wanted to rely on Ministerial decree to compulsorily take innocent people's money to cover for fraud committed by others then they would have to move to an APRA regulated fund. In other words the law ain't about to change.
This feature of the law has been around since the SIS Act commenced. I remember this being a topic of some discussion way back in 1992 - 1994.
In the initial announcements of the new super environment in 1992 the Government did say there would be protection against fraud and theft for all super funds.
However when the SIS Act was introduced into Parliament the Government deliberately didn't make the fraud and theft protection available to were small super funds which back then were known as "excluded super funds".
The reason for the exclusion was relatively straightforward to understand. Excluded funds, now called Self Managed Super Funds, are not prudentially managed and don't need access to the protection offered by the Ministerial protection funded by a levy on all APRA regulated super funds.
In reality the government didn't want a Minister to be saddled with claims of fraud for lots of small super funds. Such a policy could potentially leave a Minister with little time for anything else.
I was somewhat surprised by the shock some people felt when they learned that SMSFs were not covered by this compensation arrangement and was also surprised by some of the people making the call for the law to be changed to allow for Ministerial imposed compensation.
It never ceases to amaze me how people call on Governments to fix their problems. Regrettably Australia has operated in this way since 1788 and we've become used to relying on the State to solve our mistakes.
Most other private arrangements do not have the potential for Federal Ministerial intervention so just why Self Managed Super Funds should be any different is interesting. Why innocent investors should have their money taken out of APRA regulated funds is difficult to justify (the reasons provided almost 20 years ago were not very strong).
There would be nothing stopping all Self Managed Super Funds setting up their own arrangements to handle fraud in the sector. I can't see this happening but anything's possible.
I wonder how many SMSF clients of accountants and financial advisers are not aware that they can't rely on this legislative compensation scheme.
Although this mechanism is blocked to Self Managed Super Funds they still have many avenues to complain - accountancy bodies, Financial Ombudsman Service and even initiate legal action which might bring PI insurers into play.
Finally please consider purchasing a copy of "A How To Book Of Self Managed Super Funds". You can look at the contents page at the following link: http://www.atcbiz.com.au/r.php?r=0mjd6ne
The 4th edition was released just before Christmas.
For details of the changes made from version 3 to version 4 visit: http://www.atcbiz.com.au/r.php?r=8mz1024
As you'll see from the list there have been many changes.
Two purchase options are available - once only subscription - $55 inc GST - or an annual subscription will gives you access to all the updates made throughout the year ($120 inc GST). The book can be purchased at the following link: http://www.atcbiz.com.au/r.php?r=5a4agqb
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