SMSF property spruiker broke the rules

The Supreme Court of NSW has ruled a real estate company was unlawful in giving advice to individuals to set up self-managed super funds in order to buy property.

Key Points

  • DIY super trustees are prone to property spruikers
  • A court has ruled a property firm gave illegal advice
  • Super funds were used for purchases from the firm’s sales list

Individuals generally decide to set up self-managed superannuation funds to save on fees and to take control of their retirement savings destiny. They may find it’s not as easy as they thought, but the challenge of managing their savings will be an intangible benefit in itself.

Plenty of people are duped into setting up SMSFs, however, usually by parties who then charge them above the odds for services they’d do better without.

The Financial System Inquiry recommended borrowing within DIY super should be banned because of concern over property spruikers targeting SMSFs.

It turns out there was good reason to be worried. The Supreme Court of NSW has ruled a real estate company, Park Trent Properties Group, was unlawful in giving advice to individuals to set up self-managed super funds in order to buy property.

In a case brought by the Australian Securities and Investments Commission, the court heard how the properties group had advised nearly 900 clients by November 2014 “of the virtues of using their superannuation accounts to purchase investment properties”.

Sale of the properties, of course, earned Trent Park fees.

In his ruling, the judge said: “As part of the business, Park Trent recommended or expressed opinions to clients that they should set up their own SMSFs in order to enable them to purchase properties and, to that end, should transfer their existing superannuation balances to the newly created SMSFs.

“Park Trent’s business included facilitating the creation of SMSFs and charging fees for the services it provided.

“Park Trent also derived commissions from the sale of properties arranged through SMSFs created in this way, as did other companies within the Park Trent Group.”

 

An example was Mr Gray of Mt Gravatt, Queensland, who liked what he heard at a seminar he attended and in 2012 visited Park Trent’s Gold Coast office to learn more about buying property using his superannuation.

“It’s a good idea to have your super in something that you can have direct control over. It’s a simple form of investing,” he was told.

First Mr Gray had to set up an SMSF, but Park Trent could organise for this to be done through another firm, Navigator Network, for $5,000.

Mr Gray was then told he could afford to spend $360,000 on a property using his super, and was suggested a Sunshine Coast property would be suitable.

Mr Gray decided to go ahead.

A year later he received a letter from a valuer telling him the property was worth $100,000 less than he’d paid for it.

 

The government has borrowing within super under a three-year review. The strategy is popular with some small business owners, who may access limited recourse borrowing arrangements through a self-managed super fund to purchase their business premises, which they then lease back to themselves.

 

Disclaimer
Intelligent Investor provides general financial advice as an authorised representative under the AFSL held by InvestSMART Publishing Pty Limited (Licensee). InvestSMART Funds Management Limited (RE) is the responsible entity of various managed investment schemes and funds and is a related party of the Licensee. The RE may own, buy or sell the shares suggested in this article simultaneous with, or following the release of this article. Any such transaction could affect the price of the share.

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