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Investment strategy documentation poor among SMSFs

Investment strategy documentation poor among SMSFs

Aaron Dunn
Sarah Kendell
16 August 2019 — 1 minute read

Too many SMSF professionals are not giving enough focus on their client’s investment strategy for fear of breaching licensing provisions around advice, according to an SMSF training provider.

In a recent blog, Smarter SMSF chief executive and founder Aaron Dunn said too many documented investment strategies were falling short by simply seeking to tick compliance boxes rather than seeing investment strategy as a genuine value-add to a trustee’s retirement outcomes.

“Too often I see SMSF strategy documents supposedly built by trustees that aren’t worth the paper they’re written on,” Mr Dunn said.

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“A single-page document, the investment strategy reflects what the operating standard says, having considered risk and return, liquidity, diversification, cash flow and insurance cover for one or more members.

“I’ve long been a critic of this approach within the SMSF sector where the role of the investment strategy has been as a compliance document rather than a tool to help develop and meet retirement outcomes.”

Mr Dunn said he believed this compliance-focused approach to building a trustee’s investment strategy had come about because of accountants’ reluctance to breach licensing provisions following the tightening of restrictions around who could give financial advice to trustees.

However, he said SMSF professionals would need to overcome this given the ATO was cracking down on SMSFs with heavy asset concentration and requiring more detailed documentation around the reasons for investing in a single asset class.

ASIC’s Report 575 into advice and member experiences in SMSFs, released in June last year, would be a key source for trustees, auditors and other SMSF professionals in ensuring their clients adopted a properly documented investment strategy, Mr Dunn said.

In the report, the corporate regulator had outlined a number of essential points that needed to be covered in the investment strategy if clients were highly invested in a single asset class such as property.

These points included the needs and circumstances of the fund’s members, how long it would take for members to repay any relevant loans, the fund’s ability to repay loans in the event of unexpected events and how the members’ retirement would ultimately be funded by the property investment.

“All of these areas can be easily transferable into actions or requirements that trustees should be addressing as part of formulating their fund’s investment strategy,” Mr Dunn said.

Investment strategy documentation poor among SMSFs
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