Financial Planning, Investments

Strategy focus must emphasise non-advice

SMSF investment strategies advice

SMSF practitioners have been given a prime opportunity to discuss investment strategies, but must emphasise the discussions are client driven and not advice.

The ATO’s focus on SMSF investment strategies has made them central to conversations between advisers and clients, but the latter should not interpret those discussions as advice, according to a specialist SMSF adviser.

Skeggs Goldstien director Adam Goldstien said the release of guidelines in 2020, following a trustee mail-out in late 2019, had reset the landscape for advisers, but they still needed to approach investment strategies from a trustee point of view.

“The new ATO guidelines were a good thing and the ATO has been quite clever,” Goldstien said during a presentation at last week’s virtual SMSF Association National Conference 2021.

“Eighteen months ago there was no way you could convince an SMSF investor the value of property could decline or rent could dissipate the way they have in the last year. Now, however, is the perfect opportunity to have those conversations with a client.”

He pointed out that while advisers could discuss investment strategies with clients, the latter had to set them and relate them back to the objectives of an SMSF.

“This is a trustee-prepared document, not an adviser-prepared document and should not be seen as an advice document. It must be prepared by them according to the law,” he said.

“These are the conversations we should be having with clients and ensuring they can relate investments back to the objectives of members and clients.

“When we do so, we identify risks and how they can manage them. Asking trustees a series of ‘what if’ questions is a good way to assist them to properly consider things such as liquidity, diversification and risk.”

He said trustees should be reminded an investment strategy was not a financial plan, nor a statement of advice, and should make use of the fund’s trust deed when outlining any course of action.

As such, the strategy should be around four to five pages and include an introduction that explains the purpose of the document, a section on the fund’s profile – which links the strategy back to the fund’s unique circumstances – and sections on the investment objectives and investment strategy.

“It should incorporate the trustee’s best answers, using their words, to questions about risk, diversification, liquidity, liabilities and insurance. There should also be a section that explains when the strategy should be reviewed,” Goldstien said.

“The adviser also has an important role to play in educating trustees on how to properly formulate and implement an investment strategy. Trustees should be encouraged to reference sections of their trust deed in their investment strategy to demonstrate they’ve considered the circumstances of the fund.

“The attention and focus on investment strategies by the ATO is an enabler to have these conversations with peers and clients.

“Our job is to make sure what they want to achieve will work for them or there’s not much point in going through the process.”

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