ASIC court action against Squirrel Superannuation, La Trobe Financial Asset Management targets misleading ads

Investment group taken to court over allegedly misleading ads about investing in property for super in a move the watchdog says is a warning shot for others.

Deputy Chair of the Australian Securities and Investments Commission (ASIC) Karen Chester. Picture: AAP

The corporate regulator has begun the new year by cracking down on misleading and deceptive investment product advertising by companies it believes are promising unrealistic returns on the savings of Australians hunting for yield in a low rate environment.

ASIC acting chair Karen Chester told The Australian on Tuesday that pre-emptive action is being taken to ensure that ordinary Australians do not lose their money through deceptive conduct, including through 13 priority investigations relating to COVID-19.

“We’ve targeted the mis-selling of products and other exploitative conduct like misleading and deceptive advertising,” she said.

“To toll the deterrence bell, we’ve commenced several court proceedings, in some cases to safeguard assets.

“We’ve also acted pre-emptively, through our 2020 surveillance interventions, to ensure investment products are ‘true to label’ and not costly surprises for consumers.”

On Tuesday, the Australian Securities and Investments Commission announced it had commenced civil penalty proceedings in the Federal Court against Squirrel Superannuation Services in late December for making false or misleading representations in an advertising brochure distributed to potential customers.

The brochure, which was distributed to thousands of people between 2015 and 2018 advertised Squirrel Superannuation’s services that assisted customers in purchasing residential property through their self-managed super fund.

The brochure was headed: How buying established residential property can super charge your superannuation.

ASIC alleges it made a number of misleading representations about the expected returns of residential property investments.

In particular, the brochure claimed that “residential property in metropolitan locations doubles in value every seven to 10 years and generates a rental return of around 4-5 per cent per annum” and that there is a “remarkable” difference in returns between investing in a traditional super fund and investing in residential property.

ASIC alleges that the brochure implied an investor could earn a 14 per cent annual return through a property-based SMSF compared with a 7 per cent return through a traditional fund, and that the cost of managing an investment property through an SMSF was “surprisingly low” compared to using a financial planner.

The action comes after Ms Chester highlighted a renewed bid to target companies taking advantage of the post-Covid economy, particularly in the “opaque” managed funds sector that underpins much of the superannuation system.

Earlier in December, ASIC filed similar proceedings in the Federal Court against La Trobe Financial Asset Management for misleading or deceptive promotion of its Australian Credit Fund.

ASIC has alleged that recent advertisements for the fund implied that customers who invested in the 48 Hour Account and the 90 Day Notice Account would be entitled to withdraw their money within two or 90 days of giving notice to La Trobe respectively.

In reality, the regulator said that consumers had a range of alternate rights spanning from the right to receive their money within 12 months of their notice to no right to withdraw at all.

It is also alleged that La Trobe represented that any money invested would be “stable, in the sense that there was no risk of substantial loss of capital, when in fact there was a risk of substantial loss of capital” and that a specified rate of return was guaranteed when “none of the investment options in the fund were guaranteed to provide any particular rate of return”.

ASIC is seeking declarations and pecuniary penalties against both La Trobe and Squirrel Super and will continue to bring actions as the year progresses.

“Conduct exploiting consumers and investors in the pandemic environment is ‘front and centre’ of ASIC enforcement priorities,” Ms Chester said.