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Practitioners resisting change on investment strategy
The majority of SMSF practitioners are still resisting the idea of putting further consideration into the investment strategies of their clients’ funds, despite the ATO’s recent letter campaign flagging the lack of diversification in a proportion of SMSFs, according to Smarter SMSF.
The SMSF training provider recently launched a poll on its website to gauge the industry’s response to the ATO’s investment strategy campaign, and had garnered almost 60 responses by Thursday, with 64.5 per cent of respondents saying the regulator’s actions were overblown.
A further 35.5 per cent said the letter campaign represented the opportunity for the SMSF industry to “step up” as regards investment strategy, which Smarter SMSF chief executive and co-founder Aaron Dunn said had been a commonly neglected area when it came to SMSF documentation.
“Many investment strategy documents over time have been very poorly developed where it may be a single page or two pages that replicate the requirements within the regulations,” Mr Dunn told SMSF Adviser.
“In this instance, trustees have not clearly demonstrated how they have considered each of the elements of risk, diversification, liquidity, the ability to discharge assets when they fall due, contracts of insurance etc.
“Documentation needs to better demonstrate how trustees have come to the decision being made as to how the fund invests, not simply heading straight to the investment ‘start line’.”
Mr Dunn said some of the resistance coming from professionals in the sector around getting involved with client investment strategy may be coming from a lack of specialist knowledge as well as worries about breaching advice laws.
“We have a wide spectrum of skill sets among professionals dealing with trustees — specialist service providers within the industry typically will have a more comprehensive understanding of the role an investment strategy might have in meeting a client’s objectives, in addition to the SIS requirements,” he said.
“On the flip side, other practitioners might see it simply as a compliance box that needs to be ticked, hence we end up with a significant disparity between good and poor [outcomes].
“I also think the role of ‘who can advise’ plays a big part here — there’s still a sense of trepidation among accountants in the role they can play, most important[ly] ensuring they don’t overstep any line that would be considered advice.”
Mr Dunn added that while there had been “some lessons for the regulator” around the tone and manner in which they had chosen to communicate with affected SMSFs, concerns around investment strategy construction were valid given the number of funds that were highly concentrated in one asset.
“ATO statistics show that asset concentration is not limited to LRBAs with real property — nearly one-third of funds have a single asset or asset class within their fund,” he said.
“Therefore, from a regulatory context, it is about how the trustees have demonstrated how they are managing the risks with inadequate diversification.”
It's hard to give thought to something when you are documenting the establishment of an SMSF as a client directed transaction. An efficient and well documented approach through a licensed professional as opposed to an accountant who deliberately breaks the law because they don't agree with it would result in a documented investment plan.0- What Diversification ? Investments have to be skewed towards Shares as Property is too hard or too restrictive to get into
0 - ATO's actions stem from the fact that those involved in pushing increased regulation have never risked anything no do they have anything to risk themselves, Hence, waste taxpayer's funded hours to keep putting obstacles in front of self-retirees that knew how to accumulate assets for old age and do not need un experienced in the field to preach how to look after their assets.
An excellent example has been APRA's dabbing into Bank's business of increasing interest approval rates; now, the building industry is faced with unemployment because the government have left it all to APRA to manage monitory policy.0
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