It is ill-advised to include any nominated allocations to particular asset classes in SMSF investment strategies as this practice commonly causes compliance issues for trustees, the partner of an international accounting firm has said.
“It was [a fairly standard practice] in the industry to have asset allocation tables where you might see [a nominated 10 to 70 per cent allocation to] listed securities, and [the allocation to] property might be 15 to 45 per cent or whatever you might like to do,” Deloitte superannuation, SMSF and retirement savings partner Liz Westover noted at the most recent National Superannuation Conference hosted by The Tax Institute.
“When I talked to my auditors about it they said ‘take it out because you don’t need it’. And in actual fact more funds or more trustees are falling over regarding investment strategies because they’ve got those asset allocations in there.
“So take them out. You don’t need them.”
According to Westover, trustees should be more focused on ensuring the SMSF investment strategy addresses all of the other elements stipulated by superannuation legislation.
“Broadly speaking we have provisions in the SIS (Superannuation Industry (Supervision)) Act that say an investment strategy must address certain issues such as liquidity, diversification, members’ insurance [needs] and so forth,” she noted.
“As long as you’re addressing all of [these] issues around risk and diversification, et cetera, [your compliance obligations should be met].”
She pointed out some extra provisions can be included if the fund is holding less traditional assets or employing gearing strategies.
“Our auditors tend to like additional paragraphs [to address] cryptocurrency, unlisted assets, limited recourse borrowing arrangements, and collectables and personal use assets,” she acknowledged.
While it is not a requirement by law, she suggested it is impractical not to have the SMSF’s investment strategy in writing.
“[The SIS Act] doesn’t actually say it has to be in writing, but of course the auditor has to sign off on compliance with an investment strategy. So it almost has to be in writing otherwise the auditor is not going to be able to verify the fund is actually complying,” she said.
