Investment strategies must be ‘trustee driven’

From

Shelley Banton

Although a self-managed super fund (SMSF) investment strategy is not an advice document, advisers must ensure that it has not been interpreted as advice, Adam Goldstien, a financial adviser with the financial planning firm Skeggs Goldstien, told the SMSF Association 2021 National Conference.

In his session titled “The rise and rise of compliant SMSF investment strategies: Why it’s more important than ever”, he 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”.

It was one of the most watched sessions at the National Conference, with Goldstien co-presenting with Nicholas Ali, Executive Manager, SMSF Technical Support at SuperConcepts, and Shelley Banton, Head of Education, ASF Audits. The session’s underlying theme was the importance of tailoring an investment strategy to a fund’s circumstances and the need for trustees to be able to demonstrate that they have considered all the relevant requirements.

Goldstien said: “Investment strategies are not a plan; they’re a strategy. 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.

“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.”

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 to more than 17,000 trustees in 2019 who, according to the regulator’s records, had 90 per cent or more invested in a single asset or asset class – hence the aptly titled session, “The rise and rise of compliant SMSF investment strategies”.

Goldstien said: “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 adviser also has an important role to play in educating trustees on how to properly formulate and implement an investment strategy. 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.”

Ali reminded delegates that investment choice did not override the trustee legislative requirements and Banton explained that COVID-19 was no excuse for not complying with the asset ranges stated in a strategy. “It’s acceptable for trustees to put in place a short-term strategy if they find themselves in a difficult situation, but it must be documented,” she said.

Shelley also explained that although it was not necessary to have asset ranges in an investment strategy, just saying the fund can invest in cash and other assets is insufficient. “All material assets should be listed, and the trustees should be able to explain how investing in those assets will achieve the fund members’ retirement goals.”

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