Dominant trustees an issue for SMSFs
A growing prevalence of dominant trustees within self-managed super funds (SMSFs) could be a growing area of concern for the sector, according to Pauline Vamos, CEO of the Association of Superannuation Funds of Australia (ASFA).
Commenting on SMSFs more broadly back in late September, Vamos raised the issue of dominant SMSF trustees as just one of a number of public policy issues she felt required further discussion.
"A lot of people understand they're in a self-managed fund because they are able to manage their tax, which is great, but do they know the risks?" she asked. "Have they taken into account what happens in divorce?"
Vamos said that her prime concern was that the uninformed members of self-managed funds weren't being protected and that the sector required appropriate frameworks to do exactly that.
"I mean, there's often two members; one, and it's quite often the husband, doing a lot of the work while the wife does not - so what are the consequences of that?" asked Vamos. "All I know is anecdotal evidence that women are missing out because there's no free dispute resolution and they don't have the money to take the man to court.
"I think we have to look at whether there are any emerging social policy issues out of the sector that we should address now before they become such bigger issues that taint the sector in the future."
Alternatively, Philip La Greca, technical services director for Multiport, said that the issue was less about dominant trustees than it was about a dominant member.
"So what we're really talking about here are two issues; a member deadlock and what happens during the day-to-day operation of the fund," he said. "At a trustee level, you have a two-member fund, both members are trustees and, theoretically, any decision that needs to be made has got to be agreed to by both.
"So you might have a dominant person in that grouping and you might have an issue where someone is the driver for everything that happens, but that's an issue not so much for the fact that there's one person who's the driver, but because it means that the other person is not really engaged in the process."
In the case of divorce, La Greca agreed that a stalemate or deadlock could certainly arise, particularly with regard to winding up an SMSF or the sale of assets, but he reiterated that such an issue took place at a member level.
"So one of the things that gets done, not so much to avoid the dominance question but at least to give someone a deadlock power, is instigating member-level action similar to a shareholder meeting," he said. "So perhaps the size of your balance gets you a number of votes and what that means is that, providing the person with the largest balance wants to, they could effectively sack the trustee who's causing the problems.
"That would then allow them to do the actions that are necessary to get the fund moving again.
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