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Investment strategy needs more consideration

SMSF trustees need to place greater importance on their fund’s investment strategy, which sets out the fund’s investment objectives and specifies the types of investments it can make, as it is commonly overlooked.

“[At the audit level] one of the issues is that trustees don’t appear to put a lot of thought into the investment strategy,” SuperAuditors director Shelley Banton told the SMSF Association 2016 National Conference in Adelaide during an investment strategy panel session.

“Trustees need to use their investment strategy as a blueprint for their fund’s investments.

“When these investments materially differ from what they’ve got in their investment strategy, the auditor is actually obliged to ask when the investments are going to return to what the investment strategy says or when they are going to update the investment strategy.”

It was also crucial that all assets were listed, Banton added.

She revealed one of the problems with the Superannuation Industry (Supervision) Act was that it did not specify how the investment strategy needed to be recorded.

“The legislation doesn’t say that it has to be written down, it doesn’t say that you have to use a standard format and it doesn’t have to be in a specific format either,” she said.

“So this presents a catch-22 for SMSF auditors because it’s actually impossible for us to audit a verbal strategy.

“Luckily the ATO has come to the rescue and has stipulated that the investment strategy does need to be written down in case of an ATO audit or review.

“That’s even more important because regulation 4.09 is an important contravention.”

She warned the administrative penalty of 20 penalty units or $3600 was automatically imposed on the fund when that particular contravention was reported to the ATO through an auditor contravention report.

“Now the ATO are typically lenient with that penalty, but they’ve already flagged that won’t happen if it’s a repeated contravention, so that’s an area of concern that advisers should be looking at,” she said.

Crowe Horwath superannuation and SMSF principal Kathy Evans added: “If you see a GFC [global financial crisis] coming, then that’s the perfect reason why you should be reviewing your investment strategy and updating it.

“That’s why the investment strategy should be flexible and efficient. Changing it shouldn’t be a major [task].”

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