ATO diversification probe puts onus on trustees
The ATO’s letters to SMSFs on investment strategy have highlighted the fact that undiversified funds are obligated to explain their investment decisions to the regulator, regardless of whether or not they have an LRBA, according to Smarter SMSF.
In a recent webinar, the SMSF training provider’s chief executive and co-founder, Aaron Dunn, said while just a small number of funds invested in leveraged property had been contacted in the campaign, the crackdown had served as a reminder to trustees that they were required to account for their lack of diversification if they chose to invest heavily in a single asset class.
“The default position is ‘do we have a diversified strategy’, that is the default position the regulator takes and if we have something that doesn’t look diversified, what strategies have been put in play to ensure the trustees are only taking on an acceptable level of risk and understanding the volatility of return given the whole of the fund’s circumstances,” Mr Dunn said.
Mr Dunn added while guidance from the ATO around what was expected in an investment strategy had been limited, trustees could take learnings from both ASIC and APRA guidelines when it came to what financial advisers and trustees of public offer funds were obligated to do around superannuation investment strategy.
“APRA’s guidance says that the onus is on the trustee to provide justification for their decision, hence why we have seen that letter — the ATO needs to ensure the trustees are acting in the best interest of all the members,” he said.
“So where heavy concentration in one asset exists, the expectation is that the trustee will devise a plan to reduce the risk over a period of time, and we would expect to see that through future contributions that would ultimately be used to diversify the portfolio.”
A survey of the 400 webinar attendees indicated the ATO’s campaign had already had a significant impact on the way auditors approach the issue of fund investment strategy, with 89 per cent of respondents saying they would be reviewing and updating some or all of their clients’ strategy documents.
Just 7 per cent of those surveyed said they believed all their clients’ investment strategies were adequate, while only 6 per cent said they would just be focusing on those who had received the ATO letter, indicating auditors were taking a conservative approach in ensuring client compliance.
