Can you spot a superannuation scam? We show you how.

Woman at home in front of her computer looking anxious.

In its recent report on harmful advice charges, the Australian Securities and Investments Commission (ASIC) recently revealed that a staggering $990 million in advice fees were charged across 476,000 superannuation accounts.*

These fees aren’t your typical investment or administrative fees; they’re substantial charges specifically for personalised advice. But would you believe that some people are paying up to $23,000 just to be advised to switch to a fund with worse performance and higher fees? Shockingly, this was the reality for one individual in an ASIC case study.

Across the industry, a concerning 70% of trustees allowed advice fee deductions exceeding $15,000. And sadly, the quality of advice often doesn’t match the hefty price tag. In fact, sometimes it's outright fraudulent.

The “free super review” scam

This article will delve into a prevalent scam involving cold calls offering "free superannuation reviews." 

These calls often employ high-pressure sales tactics and come with exorbitant fees attached. They're typically initiated by third-party entities hired by superannuation companies, creating a layer of plausible deniability.

And if you think you’re immune to these tactics, think again.  Scammers know how to exploit vulnerabilities and push emotional buttons. 

So while we await tougher crackdowns from ASIC, we thought we’d review a couple of ASIC’s case studies to see what they have in common. That way you’ll know what to look out next time someone calls you, claiming to want to help you earn more through your super.   

Here’s how to spot the “free super review” scam.

The cold call

It all begins with a simple phone call. You're going about your day when suddenly, a smooth-talking stranger pitches you a golden opportunity. These calls, often originating from third-party entities hired by superannuation companies, set the stage.

This is how it started for Jack Smith and Nadia Yousef, in two otherwise unrelated cases, as spotlighted by ASIC. 

The “free review”

Next you’ll be offered a “free review” of your current fund’s performance. After all, who doesn’t like free stuff? You might learn something valuable, or at the very least, gain some peace of mind.

Nope. These seemingly innocuous reviews are merely a ploy to gain access to your personal financial information.

Disparaging your current fund

Next, the scammer will make misleading statements about your current super fund, painting a grim picture of your financial future, instilling fear and doubt in your mind.

Back to the case studies, Jack and Nadia were both led to believe that their existing fund was inadequate and incapable of funding their respective retirements.

The lure of high-risk investments

Now that your fears are heightened, the cold callers will then tease you with the idea of higher returns and financial security, offering an alternative strategy presented as the solution to your financial concerns.

The financial advisor

Once you're hooked and the cold caller has completed their fact-finding mission, they'll pass your details on to a financial advisor associated with the unscrupulous fund. This adds an air of legitimacy to the situation.

The “statement of advice”

Further cementing the veneer of legitimacy, the financial advisor will call you shortly after, continuing to promise the moon and stars. This time, the advisor will send you a statement of advice (SOA), outlining the strategy they recommend. 

However, don’t be fooled - the SOAs that Jack and Nadia received contained misleading information about their new funds. Their SOA’s were also “limited in scope”, lacking important details like why the strategy was right for them specifically.

The “authority to proceed”

Without giving you time to review the SOA, the financial advisor will pressure you into signing an “authority to proceed” using an electronic signature. This starts the process of implementing the strategy recommended. 

Excessive Fees

Once you've made the switch to the new fund, brace yourself for a slew of fees. That supposedly "free review" might end up costing you a pretty penny. 

Jack found himself staring down a jaw-dropping $23,000 bill for so-called "advice," while Nadia's tally came to $3,300. Adding insult to injury, Jack also had to cover service fees, including those associated with the cold caller, along with an additional establishment fee for the self-managed super fund recommended. 

And if that wasn't enough, ongoing fees for both Jack and Nadia were higher than the ongoing fees from their old funds.

Bottom line

The experiences of Jack Smith and Nadia Yousef offer valuable insights into the dangers of unsolicited calls promising financial benefits. 

By learning from their stories, you can develop a keen eye for warning signs and safeguard yourself against potential financial harm. Always remain cautious, inquire thoroughly, and rely on your intuition. 

Remember, if something appears too good to be true, it probably is.

And for more helpful resources on all things super, including what fees to expect, what taxes you'll pay, how to choose the right fund and more, head on over to our super guides hub.