NICK BRUINING Q+A: What happens if you’re sold a dud self-managed super fund plan? Can you get compensation?

Question

I write following your article dealing with new self-managed superannuation fund rules.

For three years I have been operating an SMSF through my share broker. When we started, he told me I would have no problem generating 10 per cent a year on my initial investment of $850,000.

This is not what has happened. I’ve made about 8 per cent in total over the three years.

There are other things that have happened which I am very unhappy with, including mountains of paperwork that needs to be completed every year.

With the current economic climate, I don’t see this SMSF making any money in the next year.

Do I put the money back into an industry super fund?

Answer

I am sorry to read of your experience. Under the circumstances, moving back to an Australian Prudential Regulation Authority-regulated public offer scheme might be the best option, but it is worth looking at a few alternatives beyond just the industry super fund network.

Low fees do not always guarantee a better return. Research organisations like Morningstar are a good source of information.

Brokers and others selling or giving advice on financial products, which includes SMSFs, are required to operate under an Australian financial services licence. If the advice, information and recommendations was negligent, you may be entitled to compensation.

There are several factors that would need to be considered in determining if the advice and the representations made to you by your adviser were negligent.

Your first step is to complain formally in writing to the service licensee responsible for the broker’s activities. The contact information for your licensee is provided in the financial services guide which would have been provided at your first meeting.

In your complaint, set out what has happened and how you would like the licensee to deal with the issue. There are strict time lines for them to respond. If you are unhappy with the response, you can take the matter to the Australian Financial Complaints Authority, which has considerable powers to deal with the complaint, including binding directions to the licensee for compensation.

The AFCA is a free service.

While I appreciate you have been burned by your experience, the value of good-quality financial advice should not be underestimated. Good advisers will focus on the strategies and structures of your existing finances, rather than the sale of financial products.

A starting point to select a good financial adviser is the moneysmart.gov.au website. It provides a suggested process for finding a good adviser.

From there, the two major industry associations provide localised lists of financial advisers. The Financial Advice Association Australia is by far the largest association of financial advisers but the Certified Independent Financial Advisers Association represents legally independent financial advisers.

Independent advisers are prohibited from receiving commissions or having any ownership links to financial products. They are also unrestricted on the financial products they can recommend.

Question

I was born in the Netherlands and came to Australia when I was 43.

I am now an Australian citizen and about to turn 67, which is also the eligibility age for a Dutch age pension.

I will get a part-state pension and an annuity from my previous employer. Together, the total is about €31,000, or $50,000.

How will my entitlements from the Netherlands be treated for tax purposes in Australia?

Answer

Foreign pensions are treated as taxable income in Australia and need to be declared, noting the Dutch tax authorities will share your information with the Australian Taxation Office.

Given that many countries’ retirement income systems rely on individual contributions, the ATO recognises those contributions as a return of the capital invested. This money effectively becomes a tax deduction here.

In the case of the Dutch state pension, the “default” tax deduction is 25 per cent of the payment received.

If tax is withheld in the other country, a tax offset for the amount is generally available here, also reducing your tax payable.

Nick Bruining is an independent financial adviser and a member of the Certified Independent Financial Advisers Association