The SMSF administrator’s principal, David Busoli, told SMSF Adviser that investment strategy documentation was too often left to the trustee’s accountant, who lacked the skills or administrative tools to cover off this aspect of superannuation law.
“It should not be the client’s accountant who is doing them; it’s the provenance of the adviser and the trustees. It shouldn’t be something that pops out of the accounting software as an automated piece of paperwork because it’s something that needs to be considered,” Mr Busoli said.
“The standard strategies spat out of the various software providers are inadequate — they are nothing more than a regurgitation of the rules, a bland statement that says we’ve satisfied them and an asset allocation somewhere between zero and 100 per cent.
“That is not what legislators had in mind when they said there has to be a clear investment strategy for an SMSF.”
As a result of this lack of adequate documentation, Mr Busoli said many of the 17,700 funds the ATO had identified as having a high weighting to a single asset may be in danger of administrative penalties as a result of the office’s forthcoming crackdown.
“The fact the strategy document is inadequate doesn’t necessarily mean they haven’t considered the lack of diversification, but if the strategy isn’t documented, that is a breach,” he said.
“The investment strategy may not have been regarded as seriously as it should have been, because where a financial planner is involved, a statement of advice covers what is required in the strategy, but it is not adequate to satisfy the requirements in terms of a document called an investment strategy.”
Mr Busoli said for SMSF professionals concerned that their clients fell into this category of highly concentrated funds, they would need to take steps to rectify their investment documentation and could make use of SMSF Alliance’s strategy templates for advisers.
“Presuming the trustee has considered the lack of diversification, I would think the ATO would look favourably on them documenting the reasons why they felt the investment was justified and doing so in a form which satisfies the requirements of an investment strategy,” he said.
I’ve never seen an Investment Strategy prepared by an adviser. If I ask for one I get sent an SOA.
Do people actually mean “rort”? I can’t see how “rout” which means a disorderly retreat by defeated side is applicable to describe the appropriate use of an Investment Strategy.
But perhaps it is a financial planning definition I should learn.
Who in the ATO is actually licenced to provide financial advice and decide that someone else’s decision is wrong! Perhaps a single asset class is in line with the members risk profile.
I like that line of thinking. I’m mulling over such a response should my SMSF be one of the ones that gets a letter. Indeed, if ATO wants to tell me what to invest in, show me the financial adviser license first. And if my fund loses some money because it is forced to diversify to avoid some sort of penalty, will ATO accept liability?
George, I generally agree with your comments, other than your very first line, as it seems like you missed the second last paragraph of the article, in which Mr Busoli does indeed offer a solution.
[quote=Glenn]SMSF’s continue to be the biggest rout by accountants. Accountants have used them for their own benefit to generate addition fees, not for their client’s benefit. They add very little to no value to the majority of people who have them[/quote] Dear oh Dear Glenn, you are showing a total misunderstanding of the SMSF system. I don’t know what you do for a living (as you don’t include your full name) but I am an accountant and I also have my own SMSF. Clients have been demonstrably thankful for how their self managed fund has performed during the years. And even when there was a not so good year, even a loss year, the fund didn’t suffer the additional cost of being charged a fee for the privilege. Vide the Royal Commission findings.
Sadly the comments of Mr Busoli don’t provide for any solution. It s very well to say “That is not what legislators had in mind when they said there has to be a clear investment strategy for an SMSF.” but this doesn’t give any guidance for trustees. The Oxford Concise dictionary defines “diversification” as”make or become more varied, enlarge or vary its range of products or field of operations”. Given that an SMSF, in order to generate income, can only invest in shares, property or cash (or some variation thereof) the diversification, by the SMSF, would be achieved by a simple combination of the two. I wonder if this would satisfy the ATO. The ATO always falls back on the sole purpose test argument but I have yet to see the ATO telling trustees how this can be achieved other than by investing in the above three types and earning income therefrom.
Accountants have never been allowed to prepare an investment strategy. Problem is the trustee has no idea of what the point is of an investment strategy. In their eyes its a useless peice of rubbish. Accountants arent routing anything, we are trying to explain to trustees what they need to do. Where they dont understand they need to see a financial planner, pay upwards from $3k to get a soa they dont need so an investment strategy can be generated to report the cash and small amount of shares they hold in their smsf. Now that sounds like a rout. Trustees dont want to spend this money. And why should they. And interestingly, I usually see 0-100% ranges on strategies prepared by financial planners!! So the planners are putting in place a strategy the ato will have issues with.
The problem is the ato. They should have templates available with guidance for trustees on things to consider and include on the strategy. Instead they provide no useful references. Trustees have no other choice but to look to advisors but its too expensive at times.
Regulators asleep at the wheel again.
Whilst the ATO has forever accepted the auto generated 1 pager Investment statement from the SMSF software via the accountant, nothing will ever change.
We shall wait and see if this changes or not many trustee are wanting to pay for a more detailed investment strategy.
SMSF’s continue to be the biggest rout by accountants. Accountants have used them for their own benefit to generate addition fees, not for their client’s benefit. They add very little to no value to the majority of people who have them
Wow, little to no value? So who prepares the financial statements and tax return? Gee, is that a requirement for a SMSF? Without an accountant the trustees cannot complete the compliance they are required to do. I’ve had a financial planner send me (an accountant) a signed rollover form and asked me to fill in the figures. Ummmm, shall I pluck the figures from the air?? The planners aren’t even aware of the process half the time. The resolutions and documentation auditors want to sight certainly don’t come from the planner for our clients. We usually have to ask the planner in which case they seem dumbfounded by our request. So who ends up putting all this compliance in place? The accountant sitting back doing nothing for their fees apparently.
Trustees only have to consider diversification then invest as they decide. Most trustees have a very clear view of what they want to invest in before setting up an SMSF. SELF MANAGED means just that. these trustees do not need to waste money paying an adviser to draw up a complex document aimed at getting their money invested by that adviser. Its not up to public servants to interfere with the trustees choice.