SMSF trustees need to be more proactive in ensuring they have a clearly defined investment strategy in their portfolios rather than treating it as just a compliance document, according to a wealth advisory firm.
Royston Capital director Chris Boag told selfmanagedsuper many trustee investment strategy documents are drafted in an attempt to meet compliance obligations and provide little investment guidance.
“Most [SMSF trustees] have their investment strategy as a compliance document and don’t actually ever refer to it,” Boag said.
“It’s generally very broad and it doesn’t provide clients that have signed it off with any guidance as to how they actually want to invest. There’s no thought behind it apart from compliance.”
According to Boag, one SMSF portfolio he had seen was invested only in cash and Australian equities, while the investment strategy was broad. It covered Australian equities, cash, fixed income, property, international equities and managed funds.
“It didn’t actually cover off in-house assets or other things. In-house assets were limited to 5 per cent. There was no investment strategy around that. No guidelines,” he said.
“The trustees were self-directed and used a broker, but they weren’t actively monitoring their portfolio. Performance had been very bad.
“The reality was their tolerance to investment risk and returns suggested they shouldn’t be invested 100 per cent in equities. They were far more conservative than that.”
Trustees need to take an active interest in setting targets and understanding what assets they are comfortable investing in, where they can obtain them, where they are listed and the relevant investment structure involved, such as a managed fund, he warned.
“It has to be within the scope of your abilities and your adviser’s abilities to go and get your exposure to it,” he said.
Accountants are very proficient at compiling compliance documents, but it is SMSF trustees’ responsibility to examine the documents and ensure the investment strategy aligns with their financial goals and risk appetite, he added.