Hundreds of SMSFs May Have Funds Stuck in Investment
The Australian Financial Complaints Authority (AFCA) has ruled that two individuals who set up self-managed superannuation funds (SMSFs) based on poor advice are entitled to nearly $400,000 in compensation.
AFCA has ruled that the trustees of two SMSFs are to recover hundreds of thousands of dollars, after their superannuation savings were invested in Queensland-based fund manager Australian Fiduciaries Ltd (AFL). The ruling found that the trustees had received inappropriate financial advice. The funds, however, cannot be redeemed, meaning their investments cannot be changed.
A Case Study
A couple from Noosa, has struck a chord with many other distressed investors. They had transferred nearly half a million dollars from other super funds after receiving advice from financial advisers, and found themselves unable to access their superannuation when they attempted to switch it back. They discovered that the AFL funds were illiquid, trapping their investments in assets they couldn’t sell.
The story was first shared in AFR Weekend and has since resonated with other investors in similar situations. In late 2022, the couple reached out to Sunshine Coast-based superannuation comparison website Compare Your Super, seeking advice on establishing an Self Managed Super Fund. APT Strategy recommended they transfer their retirement savings from QSuper into AFL funds.
Months later, with little communication regarding their SMSF’s performance, they tried to switch their super back to a public fund — only to find they couldn’t because the AFL-managed funds were illiquid.
Complaints of Inappropriate Advice
The case mirrors that of other investors who have reached out to AFCA for assistance. One individual, successfully lodged a complaint about receiving inappropriate advice from the same financial adviser who had recommended the AFL funds.
AFCA found that the advice to set up an SMSF to access “sophisticated” investment opportunities—was not only misleading but left him worse off. AFCA ruled that APT Strategy should compensate the investor, covering both the initial investment in AFL funds and additional losses resulting from the poor advice, which included lost earnings and SMSF-related fees..
The Challenge of Recovering Funds
Both Compare Your Super and APT Strategy are now in liquidation, complicating efforts for investors to recover their money. While AFCA’s ruling is binding, the insolvency of the companies involved means many investors may not receive full compensation unless the Compensation Scheme of Last Resort (CSLR) comes into play. This government-backed compensation program provides up to $150,000 for investors with unpaid AFCA determinations when companies cannot meet their obligations.
Financial Rescue can assist investors who aren’t confident managing a complaint through AFCA and then through the CSLR to recover their funds.
New Developments at AFL
In a recent communication to investors, AFL announced it was considering redemption offers for those looking to withdraw funds, although it could not provide a timeline. AFL also emphasized that, due to its fiduciary duty, it could not process individual redemption requests outside of these formal offers.
AFL also noted that the funds were no longer open to new investors, as the company had shifted its focus from growth to returning capital to existing investors. According to AFL’s 2022-2023 financial documents, the funds managed by the company held assets totaling around $150 million.
Widespread Impact and Frustration
There is immense frustration felt by the many investors who were promised higher returns and more control over their superannuation—only to find themselves trapped in illiquid, high-risk investments. This ongoing saga has left many investors wondering if they will ever see their retirement savings again, as they grapple with the aftermath of poor advice and the collapse of the companies involved.
For further information about this please see the article by John Wasiliev in the Financial Review, “Hundreds of SMSFs may have been misled into this illiquidity trap”.
