Numerisk closes SMSF trustee exposure gap with Defender policy

The love affair of Australian investors with self-managed superannuation funds shows no sign of slowing. There are now more than 662,000 SMSFs holding more than $1.07 trillion in assets. That makes SMSFs the second-largest component of the superannuation system, behind only industry funds.

Despite projections in recent years that new SMSF establishments would decline, the sector has seen a resurgence, driven by younger members.

The reality of “self-managed” responsibilities

Setting up an SMSF signals a powerful drive for self-determination, one that deserves encouragement for the right people.

But the rules and regulations demand significant effort to navigate, and the penalties for breaking them are severe. These range from financial penalties to the Australian Taxation Office (ATO) declaring a fund non-complying, which means the entire balance is taxed at the highest marginal rate. In extreme cases, the ATO can wind-up a fund and pursue criminal prosecutions against trustees.

The description “self-managed” is something of a misnomer. Every member of the fund steps into the role of administrator, taking on significant personal responsibilities. Unlike retail and industry funds, SMSF trustees bear personal liability for fund management and compliance.

Strict legal and investment standards

Under the ‘sole purpose test,’ trustees must ensure the fund is maintained solely to provide retirement benefits to members. They must formulate and implement an investment strategy having regard to liabilities, risk and return, diversification and liquidity.

The investment strategy requirement is an operating standard under the Superannuation Industry (Supervision) Act (SIS). Trustees who breach those conditions when a fund suffers a loss face fines.

Since 2013, the rules have also required SMSF trustees to consider the life insurance needs of members within their investment strategy.

Beyond regulatory action, SMSF trustees face a range of other risks: mistakes, disputes between members, scams and cyber fraud. All of these can have serious financial consequences for both funds and trustees.

A looming ATO crackdown

The ATO has made clear it intends to step up its scrutiny.

In February, ATO Deputy Commissioner Ben Kelly told the SMSF Association’s national conference that the regulator would aggressively regulate SMSFs in 2026. He cited consistent mismanagement and the continuation of prohibited activities.

The ATO is specifically targeting prohibited loans and illegal early access. Prohibited loans alone have jumped from $252 million to $398 million in recent years.

The regulator is also targeting an estimated 93,000 SMSFs with overdue returns, and 20,000 that have never lodged a return since registration. Cases of coercive control and financial abuse within funds have also drawn ATO attention.

A new insurance solution: SMSF Defender

Into this environment, data-driven insurance broker Numerisk has launched SMSF Defender, a first for the Australian SMSF industry. Backed by Lloyd’s of London, the policy protects SMSF trustees and funds from the financial consequences of regulatory action, mistakes, disputes, audits, scams and cyber fraud.

SMSF Defender offers four main cover categories:

• The first is personal liability and fund reimbursement: if a trustee is personally accused of an illegal act, an error, omission, breach of duty, administrative oversight or other trustee-related issue, the policy covers legal costs to defend claims or investigations, compensation or settlement amounts, fund reimbursement if the fund indemnifies the trustee, costs for participating in official inquiries and claims relating to privacy breaches.

• The second is fines and penalties cover for those imposed under Australian law, including costs of legal representation, for unintentional breaches of SMSF rules.
• The third is tax audit and investigation cover, reimbursing certain professional fees arising from formal ATO audits or investigations.
• The fourth is crime and cyber-fraud cover, protecting the fund against financial loss caused by criminal activity and the costs of investigating such losses.

Coverage excludes intentional or dishonest conduct, fines or penalties that cannot legally be insured, circumstances known before the policy incepted, and fund insolvency.

Bridging the protection gap for “mums and dads”

Richard Silberman, CEO and founder of Numerisk, says:

“SMSF trustees take on substantial responsibility when managing their own superannuation, often without fully understanding the personal liability risks involved. The failures of the Shield Master Trust and Guardian products serve as stark reminders of market exposures for trustees who are ultimately mums and dads and everyday people, something all industry stakeholders should keep front of mind.”

Silberman describes SMSF Defender as a genuine first-in-market product and makes the case for its value in dollar terms.

An adviser could seek out the component covers individually, trustee liability, cyber, crime and fraud, tax audit. But Silberman estimates that buying the parts separately would run to $30,000–$40,000 a year. Many of those policies were not designed with the SMSF audience in mind.

“There are a couple of products you could potentially buy, but you’d need extensive endorsements to make them work, because the language isn’t intended for the SMSF audience,” he says. “We did a huge amount of drafting to make the product fit right.”

SMSF Defender is offered in three tiers:

• $1 million for $2,600
• $250,000 of cover for approximately $1,300
• $500,000 for approximately $1,800

“If you’ve got above half a million dollars in an SMSF, which you probably should, for an SMSF, paying $1,400 a year for this insurance is a rounding error,” Silberman says. “We all know the ATO is cracking down, and ignorance is no longer an excuse. We believe advisers should offer this product as a protection for every SMSF they establish.”