The Federal Court has ordered Squirrel Superannuation Services Pty Ltd pay a $55,000 penalty for false and misleading marketing regarding investing in residential property via self-managed superannuation funds (SMSF).
The Court found Squirrel distributed a brochure conveying misleading representations about residential property investment returns at a seminar and via email on about 9,420 occasions, between March 2015 to January 2019. Squirrel was found to have engaged in conduct that was misleading and deceptive or likely to mislead or deceive.
ASIC issued two Infringement Notices to Squirrel regarding the same conduct in October 2018 which Squirrel failed to pay. ASIC then took the matter to the Federal Court in December 2020 (21-002MR).
ASIC Deputy Chair Sarah Court said ‘The SMSF sector holds an estimated total value of assets of just over $876 billion. Misleading information about SMSFs can greatly impact the sector so it is important that clear and accurate information is provided to those looking to set up an SMSF.
Top Australian Brokers
‘ASIC issued two infringement notices about the Squirrel marketing material that were not paid. Entities should be aware that by not paying infringement notices, they risk higher penalties imposed by the Court,’ concluded Ms Court.
The Court found that the brochure, titled ‘How buying established residential property can super charge your superannuation?’, made a series of misleading representations, including that:
- residential property in metropolitan locations was likely to double in value every 7-10 years and generate a rental return of around 4 – 5% per annum;
- purchasing an $800,000 residential investment property using a 25% deposit from an SMSF and taking out a mortgage for the balance would produce an average total annual return of 14%;
- there is a ‘remarkable’ difference in returns between investing in a regular superannuation fund (7%) and using an SMSF that purchased residential property (14%); and
- the costs of managing an investment property through an SMSF are ‘surprisingly low’ compared with using a financial planner to select a series of managed investment funds.
Justice Burley of the Federal Court noted that ‘Squirrel’s misconduct was compounded when it continued to disseminate the brochure after receiving verbal feedback from attendees [following a seminar] in April 2015 and, more particularly, after it had received notification from ASIC about its concerns in July 2018. The fact that Squirrel approved and distributed the brochure over an extended period may be taken to reflect a poor corporate culture of compliance and indicate that Squirrel had inadequate systems in place to ensure compliance with the Act.’
His Honour also noted that ‘Squirrel has a mixed record when it comes to cooperation with ASIC. Following notification of [ASIC’s] concerns, Squirrel purported to cease using the brochure, but then continued its distribution. It also misled ASIC as to the number of occasions it had distributed the brochure. Furthermore, while [Squirrel] accepted liability to pay two infringement notices relating to the brochure, it failed to pay them. Such conduct should be discouraged.’
Squirrel holds an Australian Financial Services licence and is authorised to carry on a financial services business.
In July 2018, ASIC raised concerns with Squirrel about the contents of its brochure and in October 2018 ASIC issued two infringement notices. Despite ASIC’s concerns, the brochure continued to be distributed until January 2019.
In August 2019, Squirrel was placed in voluntary administration. Squirrel is now under new management.
ASIC does not regulate SMSFs. ASIC’s role is to regulate particular providers of services to SMSF trustees, such as SMSF auditors and financial advisers, and those who issue the financial products that SMSFs invest in. ASIC does regulate the marketing of financial products, including financial advice. For further information, see ASIC’s RG 234: Advertising financial products and services (including credit): Good practice guidance.
ASIC’s Moneysmart website has information about self-managed super, which includes guidance for consumers about using an SMSF to invest in property.