Who can help me prepare, update or review my investment strategy? Your SMSF investment strategy should be in writing. It should also be tailored and specific to the relevant circumstances of your fund rather than a document which just repeats the words in the legislation. Relevant circumstances may include but are not limited to personal circumstances of the members such as their age, employment status, and retirement needs, which influence your risk appetite. You also need to articulate how you plan to invest your super or why you require broad ranges to achieve your investment goals to satisfy the investment strategy requirements.
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Who can help me prepare, update or review my investment strategy? Your SMSF investment strategy should be in writing. It should also be tailored and specific to the relevant circumstances of your fund rather than a document which just repeats the words in the legislation.
Relevant circumstances may include but are not limited to personal circumstances of the members such as their age, employment status, and retirement needs, which influence your risk appetite.
You also need to articulate how you plan to invest your super or why you require broad ranges to achieve your investment goals to satisfy the investment strategy requirements. If you choose not to use allocated portions or percentages in your investment strategy, you should ensure material assets are listed in your investment strategy.
You should also include the reasons why investing in those assets will achieve your retirement goals. See also: How to investExternal Link — further information on the moneysmart.
For instance, you need to be aware of the in-house asset rules and acquisitions from related party rules. Where your investments breach the super laws, we can take compliance action against you. Depending on the severity of the breach, we may apply penalties and potentially disqualify you as trustee. See also: Restrictions on investments What does having regard to diversification mean and can I invest all my retirement savings in one asset or asset class?
While a trustee can choose to invest all their retirement savings in one asset or asset class, certain risks such as return, volatility and liquidity risks can be minimised if a trustee chooses to invest in a variety of assets. This is called a diversified portfolio which helps to spread investment risk. Investing the predominant share of your retirement savings in one asset or asset class can lead to concentration risk.
In this situation, your investment strategy should document that you considered the risks associated with a lack of diversification. Asset concentration risk is heightened in highly leveraged funds, such as where the trustee has used a limited recourse borrowing arrangement to acquire the asset.
This can expose members to a loss in the value of their retirement savings should the asset decline in value. It could also trigger a forced asset sale if loan covenants for example, the loan to valuation ratio are breached. Super laws also require trustees to invest in accordance with the best interest of all members. You need to be aware of any legal risks that may result from investing in one asset class. What does giving effect to my investment strategy mean?
To help meet this requirement, you could consider specifying appropriate allocations or percentage or dollar ranges for each class of investment ranges that you have chosen for your strategy. These allocations or ranges typically allow some flexibility for market fluctuations. Your strategy must articulate how you plan to invest your super in order to meet your retirement goals.
You should review your strategy regularly to ensure it continues to meet the current and future needs of your members depending on their personal circumstances.
Certain significant events should also prompt you to review your strategy, such as: a market correction when a new member joins the fund or departs a fund when a member commences receiving a pension. You should also review your strategy at least annually and document that you have undertaken this review and any decisions made arising from the review. For example, you could do this as part of the annual trustee meeting minutes.
You should then provide these minutes or other evidence of a review to your auditor. When conducting the annual audit on your fund, your auditor will check whether your fund has met the investment strategy requirements under the super laws for the relevant financial year. What happens if my SMSF investment strategy is not compliant? If your auditor identifies that you have breached the investment strategy requirements then you should fix the breach.
If your strategy failed to adequately address some of the factors mentioned above, such as the risk of inadequate diversification, you can fix this by attaching a signed and dated addendum to the strategy or a trustee minute which adequately addresses the requirements.
You should then show this to your auditor prior to finalisation of the audit. You should then make sure you regularly review and adhere to your new strategy in the future. For most funds, the criteria will be met if either: the auditor has identified the same breach in a previous income year and it has been repeated in the current income year it is a breach from a previous year that remains unrectified at the time of audit. If your auditor is required to lodge an ACR and the breach has not been rectified, we will ask you to rectify the breach.
The directors of a corporate trustee are jointly and severally liable to pay this penalty. We cannot assist you with preparation of your SMSF investment strategy as this could amount to the provision of financial advice.
If you require assistance with the preparation of an investment strategy, you should consider seeking advice from your usual SMSF adviser or a licensed financial adviser.
Note that your usual SMSF adviser may not be a licensed financial adviser and legally capable of assisting you. They may be able to guide you on where to obtain resources such as an investment strategy template.
Take care when obtaining standard investment strategy templates as these may not satisfy the super rules. Last modified: 17 Feb QC Footer.
Your self-managed superannuation fund (SMSF) investment strategy
Return ato smsf guide tax
Amendment of returns and imposition of both SISA and Tax Administration Act TAA administrative penalties may be considered and imposed under both pathways depending on the behaviour we are trying to address. The most serious action we can take in response to a breach is to disqualify the trustee. We will disqualify a trustee if the Commissioner is concerned that allowing them to remain a trustee would present a future compliance risk or risk to retirement savings. We will only disqualify a trustee after we have considered all other enforcement actions. This is terrific, because it means the vast majority of SMSFs are doing the right thing.
Self-managed super funds
An update from the regulator on practical issues within SMSFs