Smarter SMSF chief executive and founder Aaron Dunn told SMSF Adviser that, while the ATO was justified in its moves to improve the quality of SMSF investment strategies, it also needed to provide better guidance to accountants and auditors around what was required.
“In reality, it is a document that has no meaning and doesn’t help trustees move towards the retirement objectives that they set up the fund to help meet, so we really need to step up the quality of the document and what its meaning is,” he said.
“I have been quite vocal in trying to ensure we’ve got appropriate guidance, because if the ATO is addressing these issues of heavy asset concentration, they need to come back and provide guidance into the community as to what their expectations are.”
Mr Dunn said the lack of a comprehensive framework for SMSF professionals to rely on meant there were few parameters for auditors to judge an SMSF investment strategy on when assessing whether it was compliant with super law.
“With related-party LRBA arrangements, the ATO provided a framework as to what they saw were safe harbour [rules], and therefore they could do something like this that helps extrapolate that out a bit further to guide trustees as to what those expectations are,” he said.
“That diversification requirement needs to have more meat on the bone, and understanding what the ATO would be expecting is a critical part.”
Mr Dunn said apart from more regulatory guidance, the industry also needed to improve communication between different SMSF service providers to ensure the best outcomes for trustees when it came to investment strategy.
“We need to be identifying the skill sets of different parties involved in the process to be able to assist and potentially refer on to those that can provide the appropriate guidance in respect to those issues as well,” he said.
“It is a real mixed bag in terms of who should be doing what and how, so I think it’s important that the accountant and the adviser have a strong understanding of the requirements and are able to identify where the trustee’s role and the accountant’s role may start and stop and where the adviser could step into that position.”
Extract from ANAO report “the Tax Office approached the Treasury in 2004–05 and in 2005–06 to clarify whether it had a prudential role under the SISA. Following consultation with the Treasury, the Tax Office determined that although there are a number of provisions of the SISA that have a ‘prudential flavour’, its role does not extend to reviewing or commenting on specific investment strategies prepared by SMSF trustees, or whether SMSFs are financially sound”
My comment: although we have seen developments like 1. Ryan Wealth Holdings Pty Ltd v Baumgartner, and 2. Cam & Bear Pty Ltd v McGoldrick. I suspect that the ATO, in fact, believes that it’s position is unchanged…the ATO has no prudential role. The continued sabre rattling from the ATO is welcome in my view as it does encourage debate and omphaloskepsis. Well done ATO! Heck there were even a few advisers out there who immediately took this as an opportunity to release more cats amongst the pigeons and raise a few invoices in the process. Others simply chose not to open the fire hydrant because there was no fire to put out.
@Dana Fleming-ATO Assistant Com – If the ATO cannot provide financial advice, then who are they to question a trustee who is primarily invested in one asset class.
If you’re going to write to trustees about making sure they meet the diversification requirements, are you going to be responsible if they diversify and then lose money because of a bad investment? Oh that’s right, you can’t give them advice, but somehow you can tell them they need to diversify without any come back if they do diversify and lose money?
I dont believe the ATO are saying that you have to diversify the SMSF’s assets. They are saying that you need to consider the impact of diversification (or lack thereof), ie the risk of not diversifying, and document that consideration as part of the investment strategy.
Thank you all for the supportive comments. It is not the role of the ATO to provide financial advice and attractive as it sounds there can be no one size fits all template that can substitute for or outsource the responsibility of trustees to make informed decisions on how to prudently invest for the members personal retirement goals. There are broad legislative principles to consider such as risk vs return, liquidity, adequate diversification, etc but trustees need to make the effort to understand and manage their risks.
It would still be helpful to have examples of appropriate and inappropriate strategies for trustees to refer to. They have the strategy in their heads just fine. It is getting it down on paper and ensuring it is compliant that is the issue. Having a guideline of what wording and paragraphs should be included would reduce a lot of stress for trustees.
The ATO could provide examples of good compliant strategies as a starting point. Possibly even examples of non compliant strategies and why. We want to give compliance guidelines but it’s hard to when a strategy is investment advice. Why can’t we say “hey you need to consider insurance as part of your investment strategy. Here are some example paragraphs to help you formulate a compliant strategy.” Instead clients are confused and think well I don’t need insurance so I won’t put it in at all.
I could help.
But I refuse to pay $30,000 pa for an AFSL (& staff to run it), make clients complete a 30 page fact find then deliver my service via a 40 page SOA jammed full of disclaimers and carrying a $4,000 fee then spend sleepless nights worried I’ve missed some compliance rule that AFCA decide to retrospectively apply in some 500 point checklist that hasn’t been written yet then get booted out of the industry by a FASEA code monitoring body who doesn’t understand the first thing about retirement risk management.
Spot on if I was an Accountant.
But as im a Financial Adviser that’s just the Over Complicated, Over Regulated complete BS red tape world we live in.
Its my SMSF. The ATO are not “financial planners” and cannot give advice. Most Financial Planners are only interested in commission and really do not look after the SMSF. Banks must also sort their whatever out on SMSF’s
So this bloke wants more regulation in an already highly over regulated SMSF sector.
Why Aaron so you can sell more Investment Strategy documents and BS add ons.
What a self centred approach for your own benefit :- (
Agree with Aaron, ATO talk this rubbush but theres no formats or real guidelines for trustees. Its not about software spitting something out its about the trustees being able to find information from the ato. Useful information.
The ATO were able to provide prescriptive guidelines for the safe harbour LRB provisions because they could be framed in a quantitative manner. I don’t see how the ATO could provide such a guideline for investment strategies as the considerations are quite subjective. The bottom line is that an investment strategy produced by a piece of software without the trustees specific input is not going to suffice. As trustees will generally require assistance, this is an area where financial planners can provide significant value. As a case in point, our investment strategy tool is usually populated from an SOA.