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.
ob体育 issued two Infringement Notices to Squirrel regarding the same conduct in October 2018 which Squirrel failed to pay. ob体育 then took the matter to the Federal Court in December 2020 (21-002MR).
ob体育 Deputy Chair Sarah Court said 鈥楾he 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.
鈥榦b体育 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,鈥� concluded Ms Court.
The Court found that the brochure, titled 鈥楬ow buying established residential property can super charge your superannuation?鈥�, 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 鈥� 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 鈥榬emarkable鈥� 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 鈥榮urprisingly low鈥� compared with using a financial planner to select a series of managed investment funds.
Justice Burley of the Federal Court noted that 鈥楽quirrel鈥檚 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 ob体育 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.鈥�
His Honour also noted that 鈥楽quirrel has a mixed record when it comes to cooperation with ob体育. Following notification of [ob体育鈥檚] concerns, Squirrel purported to cease using the brochure, but then continued its distribution. It also misled ob体育 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.鈥�
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Background
Squirrel holds an Australian Financial Services licence and is authorised to carry on a financial services business.
In July 2018, ob体育 raised concerns with Squirrel about the contents of its brochure and in October 2018 ob体育 issued two infringement notices. Despite ob体育鈥檚 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.
ob体育 does not regulate SMSFs. ob体育鈥檚 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. ob体育 does regulate the marketing of financial products, including financial advice. For further information, see ob体育鈥檚 RG 234: Advertising financial products and services (including credit): Good practice guidance.
ob体育鈥檚 Moneysmart website has information about , which includes guidance for consumers about using an SMSF to invest in property.