The ATO’s latest approach to SMSF asset ranges and investment strategy documentation will benefit the majority of funds, an SMSF expert has said.
Citing recent commentary from the ATO, Smarter SMSF chief executive Aaron Dunn said the SMSF regulator was correct to state fund investment strategy documents with ranges of 0 per cent to 100 per cent were unacceptable.
Dunn noted that while this asset allocation range could be suitable in certain situations, it would not suit the majority of SMSFs, particularly those following a strategic allocation approach.
“Where the fund has a strategic asset allocation approach, the concept of 0 per cent to 100 per cent is not appropriate,” he said in a blog post on the Smarter SMSF website.
“What is appropriate are asset allocation ranges that would be set at levels that allow for movement of the actual asset allocation due to normal market fluctuations; that is, the ranges would not be set so wide or narrow that they render the strategy unconstrained or ineffective.
“It does not prevent the trustees from deviating from these asset ranges, but would adjust the investment strategy asset allocation accordingly at that time.”
Funds following a dynamic or tactical asset allocation approach would benefit from a broader asset range, he added.
He also pointed out it was important for trustees to establish the investment horizon and investment objectives for their fund, as well as the initial target asset allocation for each asset class, regardless of the investment approach they adopted.
“Without adequate consideration to all of the aspects within a fund’s investment strategy, trustees [could] not only be exposing themselves to regulatory risks, including administrative penalties up to $4200 (20 penalty units), but also have little or no rudder to help them move towards their retirement objectives,” he said.
“By the ATO putting this type of activity on the radar, it is an opportune time for trustees and the industry more broadly to step up to the plate.”
In September, a specialist SMSF auditor stipulated fund investment strategies needed to only reference the type of assets to which contributions would be allocated and not the actual portion of the portfolio that would be assigned to the said asset class.