NICK BRUINING: Why complaints about self-managed superannuation funds almost doubled last year

While new data from the Australian Financial Complaints Authority showed a small drop in grievances against financial advice providers in 2024-25, there was an alarming rise in the number of people unhappy with their self-managed superannuation fund services.

Complaints lodged with the authority regarding SMSFs rocketed 95 per cent compared with the previous financial year. Just over 1300 — or nearly a third of the 4193 complaints received — concerned financial advice and investments.

That can include how the fund is being managed or supported by an adviser, and whether it was appropriate to set up in the first place.

According to the Association of Superannuation Funds Australia, self-managed funds now account for nearly a quarter of the $4.33 trillion invested in superannuation. Industry funds remain the dominant player.

Josh Mennen, law firm Maurice Blackburn’s principal lawyer dealing with financial advice complaints, said the number of complaints continued to rise.

Usually on the advice of a financial adviser, investors hope to do better financially by pulling their money out of large schemes overseen by the Australian Prudential Regulation Authority and rolling it into an SMSF.

In some cases, these DIY promoters use well-performing assets as a hook to encourage people to switch super funds.

“People see the spectacular returns on property, for example, and then see someone promoting an SMSF arrangement to invest in property,” Mr Mennen said.

“They think that by moving the money across, they will come out much better off.”

In many cases, the financial adviser may have links to property developers, financiers and other people benefiting from the deal.

Other SMSFs are established on the basis that members have more control over their investment decisions. This can include investments in assets the big super funds steer away from, including residential real estate but also cryptocurrency, collectables, and smaller specialist investment funds.

Many investments fall under the category of “speculative investments”, which generally means very high-risk. The risks only reveal themselves when an inevitable market correction occurs.

SMSF Association president Peter Burgess said having realistic expectations and applying conventional investment portfolio strategies were critical to an SMSF’s success.

“Make sure you fully understand the risks associated with any investment and, unless you have a strategy to diversify over a short period of time, it’s prudent to avoid a heavy concentration of the fund’s assets in a single investment,” Mr Burgess said.

There might also be certain trigger points in life that necessitate a change in investment approach — such as retirement or the death of a member. In many cases, most financial advisers will recommend de-risking the portfolio and moving to more conservative investments.

“The appropriate investment mix for a younger investor can be more aggressive than for someone nearing retirement,” Mr Mennen said. “Good advisers know this and make adjustments to the portfolio.

“It might even be appropriate to wind up the SMSF and move it back to an APRA fund if the members are no longer able to deal with the complexities.

“The problem is that you see very few advisers recommending that approach, especially when their fees come from the SMSF.”

Another issue may be that one member of an SMSF becomes the “dominant” member and trustee of the fund and makes most of the decisions on behalf of the other members.

Under SMSF law, each member of the fund must be a trustee, and all are equally responsible for the decisions and outcomes of the fund. In reality, many members simply defer decisions to the dominant trustee and, in some cases, legally assign authority to a single member through an enduring power of attorney.

Potentially, advisers who support this approach could be at risk.

Mr Burgess said all trustees of SMSFs must stay actively engaged.

“They should be reviewing the advice arrangements annually and the investment strategy to ensure it remains appropriate and compliant with SMSF rules,” he said.

“That includes monitoring diversification and liquidity, especially where the fund holds concentrated or illiquid assets.

Mr Mennen said that should include “a regular net-of-fees comparison to long-term benchmark returns on like-for-like APRA-regulated funds”.

“That way, and over a period of time, you can clearly see if you are better or worse off,” he said.

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