In a recent blog post, SUPERCentral noted that members of SMSFs are keen to maximise their returns and have proven year after year that they can do so equally as well as public offer funds.
“There is no need for an SMSF to have an investment strategy, which is effectively the trustee/members telling themselves what to do,” it said.
“The closely held nature of the investments by the trustee/members ensures that they will do all they can to bolster their fund’s returns so as to provide adequate financial support later in life.”
As a result, SUPERCentral said it can be argued that, in the self-managed context, investment guidelines are unnecessary.
“It is all very well for the regulator to say that if the fund loses money then the government will have to pick up the tab through increased social security payments during the member’s retirement. The fact is that no one wants to rely purely on the aged pension,” it continued.
Further, SUPERCentral said that while the adoption of a tailor-made investment strategy approach by the ATO will necessitate changes in some industry practices, a “one size fits all” template is unlikely to deliver the required results.
It also said financial advisers may potentially add value by their facilitation with the clients’ SMSF investment strategy formulation and review under the new guidelines.
“It has to be borne in mind that the ATO is not a prudential regulator and does not review the merits and suitability of the investments in an investment strategy. The investment strategy covenant in the SIS Act is an operating standard (SIS Regulation 4.09[1]). The ATO will assess whether the trustee has complied with legislation in the formulation, review and implementation of the strategy,” SUPERCentral said.
“In addition, a properly formulated investment strategy is also a defence and will provide an appropriate level of protection for the trustees and advisers should the investment fail, against actions that might be taken by any person ‘who suffers loss or damage’ as a result (Section 55[5] SIS Act).”
I would disagree with SUPERCentral here, in that I believe a good Investment Strategy requires the trustees/members think about & document their actions. I would actually go the other way & recommend that every member of every super fund (SMSF, industry or commercial) should prepare an investment strategy. Further, each of these strategies should include the most important part. Why are we investing in this manner?