SMSF investment strategy requirements

Your SMSF investment strategy

All SMSF trustees are required to prepare and implement an investment strategy for members of their fund. As the name suggests, an investment strategy sets out what the fund can invest in and all investment decisions must be made in accordance with the investment strategy.

Your investment strategy is your plan for making, holding and realising assets consistent with your investment objectives and retirement goals. It should set out why and how you’ve chosen to invest your retirement benefits to meet these goals.

The requirements

When preparing the strategy, as trustee you must give consideration to the following factors:

• Risk and return – the risk involved in making, holding and realising investments and the likely return from the investments, having regard to the fund’s objectives and its expected cash flow requirements.
• Diversification – the diversification of the fund’s investments and the risks of inadequate diversification.
• Liquidity – the liquidity of the fund’s investments having regard to its expected cash flow requirements.
• Liabilities – the ability of the fund to pay member benefits and any other costs/liabilities.
• Insurance – whether the trustees of the fund should hold a contract of insurance that provides insurance cover for one or more members of the fund.

In a nutshell, having an investment strategy that has regard to the entire fund’s circumstances will help keep you on track to achieve your investment objectives.

Not ‘set and forget’

Your investment strategy should not be a ‘set and forget’ document. It is important to review it regularly to ensure it continues to meet the current and future needs of your members depending on their personal circumstances.

In fact, the review must happen at least annually with the trustees ensuring they document this review in writing, including any decisions arising from it, to demonstrate they have met the requirement to regularly review the fund’s strategy.

Significant events require regular review

Certain significant events may require your strategy to be reviewed more regularly than on an annual basis, such as:

• A market correction
• When a new member joins or departs the fund
• When a member starts receiving a pension – this ensures the fund has sufficient liquid assets and cash flow to meet minimum pension payments before 30 June each year.

Breaching the requirements

When conducting the annual audit on your fund, your auditor will check whether your investment strategy meets the requirements under the superannuation laws. Where you don’t comply with the investment strategy requirements, your auditor may need to notify the ATO about this by lodging an auditor contravention report (ACR). Further, financial penalties may apply to trustees who intentionally or recklessly do not comply with the rules.

Getting help with your strategy

If you need help preparing or reviewing your investment strategy, you should reach out to a licensed financial adviser who may be able to help you develop a compliant strategy that is tailored to your fund and member’s circumstances.