Five Precautions to Take and Avoid SMSF Swindlers

November 22, 2016

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By Yannick Leko

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Five Precautions to Take and Avoid SMSF Swindlers
Posted on Tuesday, November 22nd, 2016

When it comes to investing, it pays to speak to professionals that you can trust.

The financial industry is highly regulated, but every now and then a con-artist slips through the net. Eventually they are caught, but often only after client money has been lost and huge damage been done to innocent people’s lives.

We hope to highlight the problems that investors face when they don’t follow a few simple precautions. They become blinded by promises of huge and unrealistic returns. If these investors had followed five simple precautions, their investment would be intact and increasing, not decimated and disappeared.

Meet Daniel Mcsweeny: the SMSF McSwindler.

Daniel McSweeny was a boot maker. Then he suddenly decided to become a financial advisor. He took his exams, bought a financial and business advice company, and set about creating a millionaire lifestyle for himself. He promised prospective clients they would get better returns from him than their long term financial planners had achieved for them.

People fell over themselves to give him their money, and he persuaded many to trust him with all their savings and investments. And when they did, he set up self-managed super funds for them. Then he invested his new clients’ money into two obscure unit trusts, each of which was controlled by McSweeney himself. At first it seemed he was doing well for his clients; after all, a financial advisor who drives a big flashy car and owns a $2.5 million dollar property must be doing something right, mustn’t he?

Now it appears that all his clients’ money has simply disappeared. Several of his companies have gone bust. He’s gone bankrupt himself, though somehow manages to rent a beachfront apartment and drive a brand new ute.

The investors he advised have lost millions, in many cases almost their entire life savings. Some of the people that McSweeney has conned considered themselves to be his friends and drinking buddies.

How to avoid being conned by the next McSwindler

The financial industry is highly regulated, but occasionally it mimics real life. Air travel should be safe. Driving should be stress free. Homes should never burn down. When we read about an airline tragedy, or a massive highway pile-up, or a house fire, we don’t stop flying, driving or start living in a tent: we take precautions. These are the rules of life, and by taking the following five simple precautions you will avoid the next SMSF swindler:

  • Always deal with experienced financial advisors

Ask to see testimonials, a track record, and the individual advisor’s job history. You should also check the firm and individual with whom you are dealing on the ASIC’s Moneysmart site here.

  • Don’t be greedy

The basic rule of thumb is that if promises of return sound too good to be true, they usually are. Investment returns average around 8% per annum over the longer term. Investment returns cannot be guaranteed, and higher returns are generally accompanied by higher risk.

  • Never commit your whole nest egg to a single scheme

Financial advisors will talk about the need for diversification. Why then would they even suggest putting all your money in a single scheme? Beware any advisor who tries to persuade you to do so.

  • Examine paperwork before you sign

Always ask to check through paperwork before you sign. Make sure you understand the structure of your investment and the legal basis under which it is controlled. If necessary, take the paperwork away to be checked by a lawyer (especially if you are investing substantial sums).

  • Never invest with friends

We all like to think we can trust our friends and thankfully, for the most part, we can. But in exactly the same way that you should never lend money to a friend, never trust your investment cash with someone you know: actors should never work with animals and children, and investors should never invest through a friend.

Treat investing like life and take precautions to succeed

You wouldn’t buy a house without making sure it was free from termites and not about to fall down, or a car without making certain it had an engine that worked. Treat your investments with the respect and diligence that you do other parts of your life, and ensure your financial advisor is reputable and experienced as well as suitably qualified.

Peter Mastroianni
Peter Mastroianni is a property finance expert and the co-founder of Loans Only, specialising in investment lending. He is the author of two top-selling real estate books and host of The Rentvesting Podcast. Peter is passionate about supporting the next generation of investors rethink the traditional home ownership model. He does this by championing the ‘Rentvesting’ strategy through www.rentvesting.com.au.

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