Investment strategy requirements that SMSF trustees should be aware of

The Australian Taxation Office is currently contacting self-managed superannuation fund (SMSF) trustees to ensure their investment strategies address the requirements of Superannuation Industry Supervision (SIS) legislation. The ATO’s contact is mostly with trustees that have SMSF’s which have 90% or more of their investments in one asset class, for example Commercial Property.

An investment strategy is a plan for making, holding and realising assets, which is consistent with the investment objectives adopted by an SMSF trustee.

An investment strategy should be specific to the relevant SMSF’s circumstances and should explain:

  • Why the trustees have invested as they have.
  • How the trustees intend to achieve the fund’s sole purpose, which is to provide benefits to members upon retirement.

The SIS legislation requires trustees to formulate and give effect to an investment strategy which must be regularly reviewed.  All circumstances of the fund must be considered when formulating the strategy and this includes but is not limited to the following:

  • Risk: What is the risk involved in making, holding and realising the funds’ investments, and the likely return from these investments, in regard to its objectives and its expected cash flow requirements?
  • Diversification: What is the composition of the funds’ investments as a whole, including the extent to which the investments are diverse or expose the fund to risk from inadequate diversification?
  • Liquidity: What is the liquidity of the funds’ investments regarding its expected cash flow requirements? How does this perform in relation to discharging the funds’ existing and prospective liabilities?
  • Insurance: Should the trustees of the fund hold a contract of insurance that provides cover its members?

Regular review of the investment strategy is required and is usually performed on an annual basis.  However, there are times when a more regular review of the strategy would be required, such as when:

  • The trustees are changing investments from one asset class to another.
  • The risk profile of a member changes due to other changes in their life.
  • A pension or lump sum withdrawal is required and therefore the cash flow requirements of the fund changes.
  • There are changes surrounding the insurance of members.

Any changes to the existing investment strategy are required to be documented and will form part of the requirements for the annual audit of the fund.

An investment strategy is not a document that is completed once and then filed away.  It will need to be regularly monitored to ensure all SIS requirements are continuing to be met. Your local Accru Adviser can assist with any questions you have regarding formulating, reviewing and, where necessary, updating your SMSF investment strategy.

To find out more about how Accru can help you contact your local Accru office today.

About the Author
Melissa McCrystal , Accru Rawsons Brisbane
Melissa assists primarily small and mid sized businesses with all aspects of their accounting, tax and audit. She has a particular focus on business valuations and self managed superannuation funds, helping businesses, as well as professionals and investors, to achieve their long-term goals.
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