Who Really Protects Your Super When Things Go Wrong

In this episode, Marco Mellado breaks down superannuation risks, investment collapses, and the red flags investors need to watch for. Learn how to identify misleading advice, protect your retirement savings, and make smarter super decisions.

Transcript

What Talk Investing Does

SPEAKER_00 0:00

The Talk Investing podcast and blog discusses investment advice from our previous podcasts and radio shows by Remo Greco and Marco Melado. Learn all things around retirement and investing.

SPEAKER_06 0:25

On the money.

SPEAKER_05 0:27

Are we going to talk about a big superannuation related scam? Marco Millardo is a super specialist. We will take your calls 1-300-22774-0437-774-774. Anything we share here is general in nature. It doesn't take into account your personal circumstances, financial situations, or needs. Marco, hello.

SPEAKER_01 0:48

Hello, Lisa. Nice to be here.

SPEAKER_05 0:50

You're looking a bit nervous. I hear you're going to the doggies game this afternoon.

SPEAKER_01 0:53

Uh Doggies game. Son's a big doggies supporter, so we're taking him along and hoping for a nice win and locking in our finals chances.

SPEAKER_05 1:02

Feeling confident?

SPEAKER_01 1:03

I think so. I think we'll get over the line.

SPEAKER_05 1:05

Okay. Well check back with you later.

Why The Collapse Feels Personal

SPEAKER_05 1:08

Marco, let's talk about this. This is very distressing and you know makes people very nervous. So I just want to go back a few steps. So I sort of said very specifically that it was a super related fund, or the especially the first Guardian one. I said that on purpose because it's not a superannuation fund.

SPEAKER_01 1:28

Correct. Really important distinction. So what has happened here is we've had the failure of investment schemes. Those investment schemes are not super funds. What they are are options inside a superfund. So if you think about a super fund being a trust, it's a structure. Your money goes into the superfund, then your superfund provides you with a very big menu of investments. These funds happen to be one option on that menu. And so if you were one of the unfortunate people that was cold called, that was sold to in a highly pressurized way and put your money into this particular investment that failed, then it's that investment that lost you money, not necessarily the superfund.

SPEAKER_05 2:23

But why isn't it protected?

SPEAKER_01 2:24

Trevor Burrus, Yeah. So this is a really good question, and it's hot at the moment, and ASIC is going to do a lot of work on this. What is the responsibility or even the duty of care that a superfund should have to its members before it actually puts investments on that menu? So how much due diligence should it do? What responsibility should it take for uncovering who the directors are? Is there a complex web of companies? Are there conflicts of interest? And so at the moment, the superfund has some responsibility, but as we can see, it's not to the point, I think, required to protect members' interests properly.

SPEAKER_05 3:01

But this makes us feel like we just have our money in

Super Fund Versus Investment Option

SPEAKER_05 3:05

a super fund and then the superfund in um happened to invest in something. But this is quite different. Somebody I think the people generally took their money out of their potentially industry superfund.

SPEAKER_01 3:15

Correct. Right.

SPEAKER_05 3:16

Yes. And then went to an advisor.

SPEAKER_01 3:18

That's right. So let's go back to the chain of events. It began with a comparison website that was established that wasn't really a comparison website. It was, in fact, as you call it, a lead generator. So what does that mean? That means it is set up or uh it's basically a scam, as you suggested, but it's so sophisticated that it makes you think you're having all of these different products compared, when in actual fact the answer was always going to be this was a bit of fun. Yep. First Guardian or SHIELD. And therefore, uh after the comparison you feel pretty confident that you've got this great investment you can invest in. Then the next step was a cold call, a salesperson calling you and and and telling you they've got your best interest at heart and that the research and all of the uh the data and all the algorithms backing their engines are top-notch and they've come out with this particular recommendation. High returns. High returns, all that sort of stuff that lures people. And so but in order to be able to access those particular investments, you just so happen to have to switch superfunds. It's not available in your super fund, I'm sorry to say. But if we go over to this particular superfund, or they call them platforms, because they're a platform of investments, then we can access this particular investment and we can get you bigger returns. Right? So it all sounds fantastic. Maybe sounds a bit uh too good to be true, but we're talking about consumers here that aren't really sophisticated and they're not they're not nuanced in all of the different investment concepts and funds that are around. So it sounds pretty good, right? For the average person trying to boost their super balance, it sounds really enticing. You've got a website you've gone to, you've got an advisor that you've spoken to, you've got some advice that's been written for you. Sounds pretty legit, right? Uh but no. It ends up being funnelled into a pretty opaque set of investments in a fund that had a whole bunch of conflicts of interests, that had a lot a whole bunch of related parties that they were investing in together, and money was also going off into very illiquid investments. So these are investments that it's not easy to get your money out. For example, it might be property development, money went to craft breweries, money went to uh chains of restaurants, we won't name the expensive chef car. An expensive car was bought, which was a Lamborghini, which has been seized and now we think it's going to be sold, or it may have been sold. These are just unscrupulous unscrupulous actors, total misconduct, it was missed by the platforms, it was, in my view, probably missed or not alerted to enough by auditors. So auditors have a case to answer to because the auditors are going through the financial statements and they're the ones that really know where money is being channeled, where it's ending up, and what these assets are like. And so ASIC's going to look at a whole raft of players in this game, including not just the you know, the the website

The Comparison Site To Cold Call Funnel

SPEAKER_01 6:15

people, but the advisors who conducted the uh calls with the consumers, the accountants, the auditors, the super fund platform. They all need to answer to someone.

SPEAKER_05 6:26

You're listening to Marco Millardo, who's a superannuation specialist. He's with Lisa Leong, and we're on 774 ABC Radio Melbourne in Victoria. It is 13 past ten. We are looking at super related funds that have collapsed. First Guardian is the most recent one, and then there was Shieldmaster as well. I'm going to turn to some questions, and then Marco, we will deal with how to protect yourself. But let me go to some of the questions first. So Stephen Blackburn asks, isn't this why we pay them fees to do due diligence for us? Is Steve talking about the platforms or who's doing the due diligence here?

SPEAKER_01 7:01

Yeah, I guess let's do let's deal with both. We we pay the superfunder fee not to do due diligence for us, but we pay a superfunder fee because they obviously have a lot of work to do to set up the structure and offer you the ability to have that super fund to use, provide the administration, the reporting, the compliance aspects, the menu of investments that you can choose from, the IT backing that. So that's what we are paying the Superfund the fee for. We then pay the investment and fund a fee to manage our money and manage our money honestly and deliver us the returns that they're suggesting they can deliver in their product disclosure statements. That's where the failure has been. So even though you've paid fees in these particular funds, the unfortunate the unfortunate events that unravel, you're still not protected. So those fees that you have paid are lost. The capital that you have put in now may all be lost because there's just been terrible investment decisions taken by the managers, and it hasn't been picked up early enough to be able to save most consumers.

SPEAKER_05 8:11

Roger makes this point, Marco. Lisa, this discussion raises some really important questions around comparison websites. That is the websites that compare products from within the same industry. There seems to be an increasing number of these websites, and how does the consumer know what is real and what isn't? Thank you, Roger.

SPEAKER_01 8:27

Trevor Burrus, Jr. I think that's a great question, and that can go across so many industries. It's not just super, it could be interesting.

SPEAKER_05 8:33

I've noticed comparison websites for products as well that lead you to a certain answer. And I think that looks it doesn't feel right.

SPEAKER_01 8:41

I think some people can pick that pretty quickly. I think other people may not be able to. So how are protections built in to make sure that if a comparison website is going to be available on the internet to everybody, that it's genuinely a comparison website.

SPEAKER_05 8:56

So is that an ASIC thing or what are you thinking? I think it depends on the industry.

SPEAKER_01 9:00

Yeah, if it's financial, it's probably ASIC. If it's non-financial, uh it has to be another body. But you know, y you can't have websites up there that are purporting to be in your best interests, but really at the end of the day channeling you into one or two products.

SPEAKER_05 9:15

I mean maybe that's uh part of their investigations in the future is comparison websites because ping them under misleading and deceptive.

SPEAKER_01 9:22

It's it absolutely will be.

SPEAKER_05 9:23

Total illegal activity. Okay. So let's go to how should we protect ourselves? So um let's go with you know your top tips on asking the right questions at the right time.

SPEAKER_01 9:34

Aaron Ross Powell Okay. So let's start with uh I think some really big red flags. And the biggest one is I think just getting a cold call. So receiving a cold call from someone who wants to talk about your superannuation fund.

SPEAKER_05 9:49

But this wasn't cold though, because I've done the comparison website, didn't I? I would have put in an inquiry.

SPEAKER_01 9:53

So let's say we haven't done a comparison website, but we're getting a cold call. Yes. I think that's red flag number one.

SPEAKER_05 9:58

Yep.

SPEAKER_01 9:59

Okay. Number two is yes, you've done the comparison website, as you say. You're now receiving a, let's call it, a warm call because you've said yes, I'd like someone to call me.

SPEAKER_05 10:07

Bit of information, please. Yeah.

SPEAKER_01 10:09

Want to go a bit further, want to progress it. So generally they'll have a an advisor call you. The things I would be thinking about is who is the advisor, what is their name, how can I check

Due Diligence Gaps And Who Answers

SPEAKER_01 10:20

their details. So A, you go to the ASIC Financial Advice Register, you put in their name, and it will give you all of their history. Where they worked, how long they worked there for, what sort of advice they're allowed to give, what their qualifications are.

SPEAKER_05 10:34

If I'd done that with First Guardian, would I have come up with anything at the time?

SPEAKER_01 10:37

Uh so I haven't looked at that because I haven't put their names in. But I suggest what you might have seen is a lot of movement between licensees. So this is talked about a little bit in the press at the moment, that they may have been at several license so several businesses over a five or six year span, could be three or four or five businesses. That's a big red flag.

SPEAKER_05 10:58

Okay.

SPEAKER_01 10:58

Why is this advisor moving around so much? What's happening that he needs to change businesses all the time? Yes. So that's the sort of stuff I'd be looking at initially. And then as the conversation progresses and they're writing you advice, providing you the advice, and it's pretty clear that they're saying we need to now switch super funds, and these are the investments we want to have. You've really got to dig into why what's in it for me? Why do I need to switch? So what are the clear and definable benefits? Are you getting paid for this recommendation and how are you getting paid? Who are the directors and investment managers? Are they linked to you? Do you know them? Are all the parties related? What are the investments I'm going to be invested in? Give me specific investments so I understand what they are. Is it going to be property developments? Is it going to be shares? Is it going to be commercial real estate? Is it going to be private equity? Okay, great. Now I know that. I can start to use some of my judgment to work out whether or not that feels right or it feels very, very different to what I'm currently in.

SPEAKER_05 12:03

Now Margaret asks, how do we determine what is a safe fund before we invest our money into it? But now you're talking about an advisor. Is that safer to investigate the advisor than the fund? Or what do you think?

SPEAKER_01 12:17

So it's going to sound uh onerous, what I'm about to say, but as a consumer, you've got to have some ability to look into what the investments are that the advisor is recommending. Because otherwise, you're quite right. How will you know what the investments are? That doesn't mean you have to become some kind of professional analyst or fund manager, but at least quizzing the advisor about what the investments are, how they're expected to perform, whether they're liquid or not, and you can get your money out if you need to. These are all questions that the advisor is going to have to answer, you know, in a s in a satisfactory manner. And so that will immediately give you some indication of whether or not A, the advisor knows what they're doing, and B, is he trying to hide something about these products and make them sound a bit safer and more secure? The other question I would ask, which I think is a bit of a knockout question, is okay, so if I didn't invest in the product you're recommending, will you as an advisor still give me advice? That's a really good question. Because if the advisor's sole goal is to get you into a particular product, they're probably going to say, no, actually, we can't advise you if you can't come into this product. If they're a good advisor and they're legitimate and they're they're willing to advise you, they're probably worth a go. You say, right, I'll just stay where I am and give me some great advice. And that may knock out a lot of the shonky artists.

SPEAKER_05 13:39

And then is there another question around if you are not a sophisticated investor, if you don't want to spend this time, then shouldn't you just stick to your like a well-known superannuation fund, Marco? Don't play around here.

SPEAKER_01 13:53

Trevor Burrus, Jr.: There is an argument to uh sticking to your default investment option in your super fund, and that doesn't matter whether it's a corporate fund or an industry fund, it doesn't matter what it is, but often the default investment fund, which about eight out of ten Australians are in anyway, is going to be the most regulated, it's going to have the most oversight, it's going to be the most diversified, and it's going to be one of the most liquid options you have. And so there's a lot of argument to say, well, if I'm not sure and I don't trust anyone,

Red Flags And Checks Before Switching

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maybe I'll just keep the status quo going.

SPEAKER_05 14:27

Aaron Powell Now I'm going to open up to general superannuation questions in just a tick, but Marco, do you have any final word or any final advice guidance in relation to the questions to ask?

SPEAKER_01 14:37

Aaron Ross Powell I think you've got to be really, really, really attuned to what the driving sort of reason is for the advisor wanting you to switch. And so questions around that become really, really important.

SPEAKER_06 15:02

On the money.

SPEAKER_05 15:03

Lisa Leong here. It is 22 past ten on 774 ABC Radio Melbourne and Victoria. Are we going to take your questions now on 1-300-272-774 if you want to call in? We're just doing general super related questions right now. Max is here from Elsterwick. Hello, Max. Good morning. Good morning. What's your question for Marco?

SPEAKER_07 15:26

Question is I've got a self-managed superfund. It's got some uh enough money in it to satisfy my question in shares, which you're in with the Commonwealth Bank, and also return deposits within with NAB. The money that they earn uh goes into the d into the superfunders earnings is quite legitimate. Uh everything everything's all managed by and looked after by an accountant who oversees and things. Now, one of my questions is I might want to purchase a property for my daughter to live in and I want to put a first mortgage on it. Uh, to actually finance this, I've got another property I want to sell and take and put it in this into this property to want to buy for her. In the short term, uh, how long does it take to sell a property in this market? We don't know. It might take me five or six months, a year, it could be a couple of years. Can I borrow money from that super fund, not for myself, but put a mortgage on that property, uh uh payable to me, to my superfund rather, uh, and earn earning earn the um interest into the superfund, which would all be carefully managed by the account to say it's legitimate, it's not a leaky little scheme. Um, but you see, uh you normally can't buy anything which you get a benefit from yourself in order to account your superfund, I can't finish my own mortgage. But can I do this for my daughter?

SPEAKER_01 16:52

So I I think just to just to get this straight in my head, what we're really looking at is the super fund lending you money.

SPEAKER_07 17:00

Lending money.

SPEAKER_01 17:01

So it becomes an or lending your daughter money, so it's an asset of the superfund. Uh lend your daughter money and then your daughter would need to pay that back on commercial rates. I don't think that would be allowed because your daughter's a related party. So a super fund could lend money to an unrelated party or an unrelated entity, because that it is an asset. You know, if you're lending money to someone, it's your asset. But because your daughter is a related party, it knocks that out. So a superfund can make those sorts of a self-managed fund can.

SPEAKER_05 17:32

Ah, right. Yes.

SPEAKER_01 17:33

Now other super funds can, but they won't. But self-managed funds have, you know, they're small and they exist for a reason, right? There's all these nimble things you can do. So you could do clever things like that, but you can very rarely do anything with a related party. So, you know, we'd need to get down to the nitty-gritty of the circumstances, but I think I'm going to say that's unlikely, Max.

SPEAKER_05 17:53

Alright. Sorry, Max. Thank you for your call though. That's Max from Elston Week there. Um we have this question. Am I better to direct my super funds to my estate or a binding nomination when leaving it to my adult child, not dependent? Uh love your advice and conversations. Thanks, Linda.

SPEAKER_01 18:14

So this gets to the heart of when we're inheriting super, if we're a dependent of the deceased, so that is either a spouse or a a minor young child, we get all of that superannuation tax-free. If we're not a dependent and we're inheriting, so this is generally now an adult child, there's a there's a tax rate applied to some of that. So it's people call the death tax because it's not. How much is it? It's 17 percent of the taxable component of the fund. So it's not of all of it, but it's a of a big chunk of it. If we go to the estate, it's fifteen percent, so we save two percent, but it's still a lot. So in this particular case, if we've got an adult child who's not dependent.

SPEAKER_05 19:01

An adult is 18 or over. 18 or over. Yep.

SPEAKER_01 19:03

Yep. They're not dependent. So this is the the the uh situation a lot of people are in. If they're then

SMSF Lending And Related Parties

SPEAKER_01 19:10

going to inherit directly from the superfund, the taxable component of the fund will be taxed at 17 percent. The question is, am I better doing that or nominating the estate? You're probably better nominating the estate because the estate doesn't pay the two percent Medicare levy, it's not a human being. So the tax is fifteen percent instead of seventeen. So we save two percent tax. There's no way to save any more than that.

SPEAKER_05 19:32

No, nothing?

SPEAKER_01 19:33

No, the only way is if uh you want to take all your superannuation out, put it in the bank, and then when your child inherits, it's obviously tax-free. But how do you know when you're going to pass away?

SPEAKER_05 19:47

Yeah.

SPEAKER_01 19:48

Right? You might do it too early and live another twenty years and you've just rated your super fund and it's sitting in a taxable environment.

SPEAKER_05 19:55

It is what it is. That's a tricky one. Linda, thank you for that. Okay, let's go to Alistair now. Um good morning, Alistair.

SPEAKER_02 20:03

Good morning, how are you?

SPEAKER_05 20:04

Yeah, good. What tricky question have you got for Marco?

SPEAKER_02 20:08

Well, I'm only weeks away from turning sixty and I've already retired. Um I'm just wondering how long typically my fund should um process my claim and set set up a um pension. An income for me. Yeah.

SPEAKER_01 20:23

Should be pretty fast. If you've if if you've asked, Do they know when your birthday is?

SPEAKER_05 20:28

Or do you have to tell them?

SPEAKER_01 20:30

Yeah, they do. So they're probably writing to you. You've probably you've probably already spoken to them to set this up. But I mean it it's pretty easy. It's one application form to move your accumulation balance into a pension, a pension phase. And then you set your nominated investment strategy, how much you want to draw each month. It's a pretty easy process. So if everything that they've asked for you from you, you've given them. It should be a couple of weeks.

SPEAKER_02 20:54

Yeah, okay. Un unfortunately I I couldn't set this up before I turned six. I actually have to wait till I'm sixty to to do it.

SPEAKER_01 21:01

Is that true? Uh well, you probably could have set up what's called a transition to retirement pension. Uh but sixty really is preservation age now. So that that's what they're getting at. They're getting at is is you know, no one really can access their super until preservation age. So that for everyone now is sixty. In prior years it was earlier because it was based on a uh uh a range of dates of birth. So many, many years ago it used to be fifty-five, you could start to access your super and it's slowly been increasing, and now it's sixty. So that's probably what they were getting at with you, Alistair.

SPEAKER_02 21:37

Yeah, very good. Well, thank thanks for your advice.

SPEAKER_05 21:40

Thank you, Alistair, for your great question. And happy birthday. Sixtieth birthday soon.

SPEAKER_01 21:45

Oh, there you go. Yeah. Of course. Of course. Celebrate.

SPEAKER_05 21:48

That's all part of it. Um Stella is here from Craigy Byrne. Hello, Stella.

SPEAKER_04 21:53

Yeah. Hi. Hi.

SPEAKER_05 21:54

Hi. You've got a question for Marco. Is it super or is it income tax? I'm not oh we'll have to tax.

Death Benefits Tax And Estate Nominations

SPEAKER_05 22:00

Technology.

SPEAKER_04 22:03

I've got two lots of super. One's a defined benefit. The other one is the flexi pension. And I'm wondering, am I meant to be paying um um income tax on one of them?

SPEAKER_01 22:16

Uh okay. So unlikely in the flexi pension Are you over sixty?

unknown 22:20

Yes.

SPEAKER_01 22:21

Seller? Yes. So unlikely in the flexible pension is just the name for a pension. So it's uh it's a standard pension that you would draw from superannuation when you retire. If you're over sixty, there's just no tax on those. The the technical name is their account-based pensions. So if we're over sixty and we're drawing an account-based pension, which a flexi pension is, there's just no tax.

SPEAKER_05 22:41

Are there only two, like defined benefit or flexi or the other one?

SPEAKER_01 22:44

Uh or are there more? No, you're right. So there's three. There's the transition to retirement pension. There's actually more than three, but the the most common ones are the transition to retirement pension. So we're still working and we're drawing a pension. That's not a tax-free pension environment. There's the pension that most people are familiar with, which is called the account-based pension. So that's I'm retiring, I'm over 60, I want to move my super and start uh getting a pension out of it. That's the most common one. That's tax-free in the fund, it's tax-free to you, in your hands, it's a really nice one. And then there's defined benefit pensions, which are still pretty popular. There's not any new ones being established, but generally they come from uh older schemes or government schemes. Right. So CSS, PSS, there's a whole range of those. It will depend on how much that pension is and whether it's come from a taxed or a non-taxed source. So it does get a bit complex. But if you're coming from a non-taxed source, which a lot of them are, they'll be government ones, then you'll receive that pension. It'll be taxed at your marginal rate, but you'll have a 10 percent offset. Up to a limit. It's even more complicated. And that limit's 125,000. If we're over that limit, that that that excess gets taxed just like normal income. So there's no tax benefit. Now the reason for that is you haven't paid tax all the way along what you've accumulated. Wow. Massive. Right. So 20, 30 years of no tax.

SPEAKER_05 24:18

Now, Stella, is this clear to you or is it as clear as mud?

SPEAKER_04 24:23

Is it helpful? Regarding the defined benefit. Um I j I don't know. Um do they does the superannuation fund take the tax out?

SPEAKER_01 24:33

So there's two things you could do. A, I'd go to the fund and just ask them questions. What sort of defined benefit fund am I in?

Starting A Pension And Paying Tax

SPEAKER_01 24:40

When it comes time for me to retire and start to take a pension, please give me my options. They will give you calculations. Uh it's almost like a uh a forecast of when you might retire and what your options are. So you can decide to take maybe the pension entirely. Sometimes there's a lump sum and a pension option. They'll go they'll give you really good information about how it's taxed. And there's probably within the fund um advisors you can go to that are very specific to that fund that can explain really, really well how the fund will work and what you can expect.

SPEAKER_05 25:16

Thank you. Stella from Craggy Byrne Well, Joy has been waiting very patiently to ask her question. Good morning, Joy.

SPEAKER_03 25:26

Hello.

SPEAKER_05 25:27

What's your question for Marco?

SPEAKER_03 25:29

When you I've heard that when you downsize into super that the beneficiaries don't pay tax. Is that correct?

SPEAKER_01 25:41

So can you just tell me what you mean by that?

SPEAKER_03 25:45

Well, we're downsizing in the house. And we've been told you can put $300,000 each into Super. Now I've heard that when you die, the beneficiaries when you downsize into Suba, don't

Downsizer Contributions And Tax Free Components

SPEAKER_03 26:05

pay tax.

SPEAKER_01 26:06

Yes, so very good question. So this kind of relates a bit to the two or three questions we had before. So this is about that inverted commas death tax that we talk about. If we go back to uh the balance of your fund and the fact that it consists of two different comp uh components. One's called a tax-free component, one's called a taxable component. When you downsize and put that $300 in, it forms part of the tax-free component. So, yes, you are correct. When that component is inherited by your beneficiaries, there is no tax

Final Thanks And Sign Off

SPEAKER_01 26:45

on that. So the death tax does not exist for that.

SPEAKER_05 26:48

Beautiful. Tricky questions again. Thank you so much, Marco. Marco Millada, there, our superannuation specialist, and he joins us every so often on the Sunday programme. Thank you for all of your calls and text messages.