Though it has been under Superannuation Industry (Supervision) Act (SIS), imperative for Trustees to actually have an Investment Strategy, it has been noticed that many of the SMSFs do not actually have an investment strategy.
Even the ones that have an investment strategy, generally structure it very vaguely without any clear-cut objectives or action plan.
The first thing the Trustees should ask themselves is,”does our Trust Deed permit us to carry out those investment strategies?
Recently with changes made in regulation, SMSF Trustees also need to modify their approach while conducting review of their investment strategies. One of the major things they need to do now is to confirm as to whether they have considered Life and TPD insurance within their SMSF.
Some Trustees merely record in their minutes that they have considered insurance as part of their SMSF and sometimes they simply sign off on standard printed documents provided by the SMSF administrators. The issue is that how do you justify and satisfy authorities that you have considered insurance, if you are not say holding even insurance outside your SMSF and you have liabilities to meet towards the members and family.
It is really important that appropriate documentation is maintained to evidence that all regulations have been complied with in the strategy.
If trustees invest in assets that are not permitted by the investment strategy, it is a contravention and under these circumstances, trustees have two options;
Dispose the assets and reinvest those funds in permitted investments under the strategy
Amend the SMSF, s strategy to permit in that particular investment provided it is in the best interests of the fund and is approved by all the trustees
Any contraventions discovered by the SMSF auditors will have to be corrected by the trustees and any financial loss, as a result of that will have to be borne by the members personally and NOT by the SMSF
There are advisors that purely work with clients to structure their investment strategies and other compliance documentation. This is out side the scope of mere financial planning. After all with increasing costs of possible penalties, many trustees are now seeing the prudence of seeking help from professional administrators with their strategy formulation and compliance documentation.
(By Vikram Singh CA-Financial Planning Specialist, ADFP , Founder Director of Fintacs Advisors (SMSF Compliance Solutions) (website: fintacsadvisors.com.au)
