In a blog, SuperConcepts’ executive manager for SMSF technical and private wealth, Graeme Colley, warned trustees to consider the objectives of their fund and any cash-flow requirements plus the members’ insurance requirements.
Mr Colley said superannuation law requires that a fund trustee must consider:
- the fund’s investments as a whole and include the extent to which those investments are diverse or involve exposure of the fund to risks from inadequate diversification;
- the liquidity of the fund’s investments, having regard to its expected cash-flow requirements;
- the ability of the fund to discharge its existing and prospective liabilities; and
- whether the trustees have considered insurance cover for one or more fund members.
In addition, Mr Colley said an investment strategy requires the trustee to closely follow when circumstances change and that the investments are adjusted accordingly.
As examples, he said adjustments may be required:
- when cash flows required of the fund change with the commencement or cessation of an income stream;
- where a lump sum must be paid in cash; or
- where the membership of the fund changes.
Besides those circumstances, Mr Colley said the law requires a regular review (in most cases, annually) and confirmation from the trustee to the ATO that this has taken place.
ATO zoning in on strategies with high concentrations in one asset class
According to Mr Colley, the ATO now takes a much greater interest in investment strategies, especially those which have high concentrations of investments in one asset class, such as property, shares, cash or fixed deposits.
He said he’s noticed renewed interest on the part of auditors in closely examining funds to ensure investments are consistent with the fund’s investment strategy, including the reasons behind high concentrations in one asset class.
Further, Mr Colley said this is usually brought to the attention of trustees in the auditor’s Management Letter, but, in the worst cases, may be brought to the attention of the ATO.
As a result, he advised that if an SMSF’s investment strategy doesn’t adequately fulfill its legislated requirements, the trustee generally has one of two options:
- replace the SMSF’s current investment strategy with one that does meet the Superannuation Industry (Supervision) Act; or
- provide an amendment to the current investment strategy which provides additional information on how the trustee(s) have considered the above requirements.
“In most situations, auditors have accepted amendments to the investment strategy that includes the additional information required,” Mr Colley said.
“Such an amendment typically details how the trustee has considered the SIS requirements and why investments have been made, with respect to the various needs of fund members. It should directly and comprehensively cover areas in which the strategy has been identified as deficient.”
That is a lot of talent to let go. I have known Richard for close to 20 years. He was stalwart of the old business. Insightful with practical solutions. Mark Ellem is an award winning presenter. I did not know Marjon.
It is astounding that SuperConcepts can afford to lose this talent. I suppose the failure of the business under Natasha Fenech & the inability of Lara Bourguignon to turn the business around is hitting home. AMP have taken control & costs are being cut.
The SuperConcepts technical support to the industry is the best in this sector, but Jane is correct, the company should ensure its technical insights are implemented across the broader SuperConcepts administration business.
Bruce,
This will be harder to implement as SuperConcepts has slashed Peter Burgess’ technical with 3 of 7 members departing – Richard Cousins, Mark Ellem & Marjon Muizer
Good point Graham, perhaps your administration arm should practice what you preach. Several years ago my fund auditor queried the standard investment strategy produced by SuperConcepts SuperIQ division. It took six months to rectify. With the assistance of my planner a new strategy was produced, adopted by resolution and yet at the next audit SuperIQ produced the same rubbish template strategy.
Its called a “self managed super fund” . This should mean it is self managed. The ATO should but out, they are nothing but bullies.
I am not a big fan of ATO, ASIC, etc especially as they were smashed at the RC for being asleep at the wheel a lot of the time especially to big banks.
However, a SMSF written investment strategy has been a long standing annual requirement. If you can’t manage this basic requirement then you run the risk of getting fined. It’s really not hard to get a template online or off someone else and make it your own. Seriously not hard and you may even think about things a bit more with your SMSF investments.
Agreed
One which planet, in which universe, would the investment strategy not apply to a single member SMSF? I suppose that Mt Colley’s article was written in response to someone asking that question but, if this is a demonstrable level of understanding of the act and regulations, it is no wonder that the regulator is getting tough, not just on single member SMSFs but all SMSFs. Astounding to think that some people (trustees, accountants) would even think this way.