Squirrel Super fined $55k for property claims

More than 18 months after legal action was launched, Squirrel Super will pay $55,000 for claims made in marketing materials about investing in residential property.

The SMSF administrator was found by the Federal Court to have distributed a brochure that featured false and misleading representations about the benefits of investing in residential property.

The representations were made at a seminar and also in an email on close to 9500 occasions over an almost four-year period.

The representations included that residential property in metropolitan locations is likely to double in value every seven to 10 years and generate a rental return of 4-5% each year.

The material also claimed that purchasing an $800,000 investment property using a 25% deposit from an SMSF and taking out a mortgage for the balance would produce a 14% return annually.

The brochure, titled 'How buying residential property can super charge your superannuation', also stated that there is a "remarkable" difference in returns between investing in a regular super fund and using an SMSF that purchased residential property; the returns provided as reference were 7% for the former and 14% for the latter.

Finally, it stated that the costs associated with managing an investment property via an SMSF are "surprisingly low" when compared to the cost of having a financial adviser select a series of managed funds.

It claimed that the annual management fees associated with an $800,000 investment property totalled $2400 compared to $8800 for an $800,000 managed investment with an adviser.

The material was first distributed in March 2015. In April of that year attendees at a seminar provided feedback to Squirrel on the content and the brochure was decommissioned. However, Squirrel began distributing it again shortly after.

In July 2018 ASIC let Squirrel know it was concerned as to the content and the administrator led the regulator to believe it would cease distribution again. But it didn't, and instead sent the brochure a further 112 times without disclosing this to ASIC.

In August 2018 the company told ASIC the brochure had only been distributed 602 times, but ASIC found that to be untrue. In October 2018 the company was issued two $12,600 infringement notices by ASIC over the conduct, which it failed to pay. Squirrel asked for an extension to pay them but again failed to do so.

It was also found Squirrel continued to disseminate the material before finally ceasing in January 2019. In August 2019 the company was placed into voluntary administration and later entered into a deed of company arrangement.

ASIC launched the Federal Court action against Squirrel Super in December 2020.

The court made clear that nobody has reported a financial loss or damage as a result of the misleading representations, however 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."

This article first appeared on Financial Standard

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