Future of SMSF investment strategies must be ‘trustee-driven’
Although an SMSF investment strategy is not an advice document, it will need to be tailored and keep trustees front of mind to ensure it is not misconstrued as such.
Speaking at the SMSF Association National Conference, Adam Goldstien, financial adviser at Skeggs Goldstien, said future SMSF investment strategies need to place a greater emphasis on tailoring the strategy to a fund’s circumstances.
“Investment strategies are not a plan, they’re a strategy,” he said.
“The document should be no more than four to five pages and ideally include an introduction that explains the purpose of the document, a section on the fund’s profile, which helps to link the strategy back to the fund’s unique circumstance, and sections on the investment objectives and investment strategy.”
Mr Goldstien emphasised that this document must be “trustee-driven”, with the role of the adviser to ensure trustees comply with the rules by “guiding, directing and leading them”.
“This is a trustee-prepared document, not an adviser-prepared document, and should not be seen as an advice document. It must be prepared by them according to the law,” he said.
“It should incorporate the trustee’s best answers, using their words, to questions about risk, diversification, liquidity, liabilities and insurance. There should also be a section that explains when the strategy should be reviewed.
“These are the conversations we should be having with clients and ensuring they can relate investments back to the objectives of members and clients.
“Asking trustees a series of ‘what if’ questions is a good way to assist them to properly consider things such as liquidity, diversification and risk.”
The importance of formulating an investment strategy came to the fore last year when the ATO released new guidelines on what should be included in an SMSF investment strategy.
This followed an ATO mailout in 2019 to more than 17,000 trustees who, according to the regulator’s records, had 90 per cent or more invested in a single asset or asset class.
Mr Goldstien said the incoming focus on investment strategies by the ATO is an enabler to have these conversations with peers and clients.
“The adviser also has an important role to play in educating trustees on how to properly formulate and implement an investment strategy,” he said.
“Trustees should be encouraged to reference sections of their trust deed in their investment strategy to demonstrate they’ve considered the circumstances of the fund.”