"The increasing amount of retirement wealth invested through self-managed managed funds is an attractive target for fraudulent schemes," the tax office warns.

"Many of these schemes appear extremely professional and generally promise unrealistic returns," the ATO adds.

As regulator of self-managed super, the ATO says it is "strengthening our intelligence work to improve detection" of these schemes (read more here ), working with the Australian Prudential Regulation Authority (APRA), the Australian Securities & Investments Commission and the Australian Crime Commission.

Unfortunately, the targeting of SMSFs by operators of questionable schemes is hardly surprisingly.

First, there are the sheer dollars involved. The latest-available statistics from APRA show that self-managed funds hold about $500 billion - almost a third of the money in super - with the average asset value of an SMSF nearing $1 million.

Second, the power to make investment and other financial decisions rests in the members through their role as fund trustees. Under superannuation law, all fund members must be either individual trustees of the fund or directors of its trustee board if a fund has a corporate trustee.

In addition to fraudulent investment schemes offering unrealistic returns, there are the ubiquitous early-access schemes.

From July 1999, new superannuation contributions of any type plus investment earnings must be kept or preserved in super until permanent retirement after reaching the "preservation age" (currently 55) or turning 65. (Of course, transition-to-retirement pensions provide a means for those over 55 to receive some of these super savings before retirement.)

A modus operandi favoured by operators of illegal early-access schemes is to convince fund members to rollover their super from large funds into new self-managed funds or existing super funds operated by the promoters. The money is then paid out of the super system after payment of typically huge commissions.

A twist to this approach is for super savings to be transferred from a large super fund into a self-managed fund and then invested into companies associated with the scam promoters.

One of the most unfortunate aspects of illegal early-access schemes is that some of the fund members drawn into them can legally gain access to their preserved super savings in limited circumstances before retirement after making the correct application. These circumstances, which are established on a case-by-case-by-case basis, include severe financial hardship and compassionate grounds.

And fund members who are eligible to gain access to their preserved super before retirement won't pay commissions to promoters of illegal schemes.

The bottom-line for SMSFs is to take care, extreme care, when making decisions involving their members' super savings.


By Robin Bowerman
Smart Investing
Principal & Head of Retail, Vanguard Investments Australia
23rd  July 2013