Investment strategy-related anxiety for SMSF practitioners is the result of the process of recording a strategy becoming a compliance exercise instead of documenting what trustees are doing, and it can be easily simplified, according to an administration provider.
Heffron managing director Meg Heffron, referring to a recent news story by selfmanagedsuper that SMSF accountants were feeling anxiety in regards to assisting clients with investment strategies, said the angst was occurring “because legislators and even we in the industry have joined together a really important piece of work that I believe people are doing to varying degrees – deciding where to put the money – with a compliance exercise – writing it down”.
Heffron noted in a blog post that while the central task for SMSF trustees is to collect, invest and pay out money, they most often think about the investment component and it was likely at least one person in every SMSF has spent time thinking about the strategy.
She added this thinking may not always be sound, but the process of getting it on paper was being overcomplicated and in some cases pushed accountants out of a process that does not need to include investment recommendations.
“As soon as the ‘writing it down’ part becomes the most important thing, we immediately dive to templates, standard asset allocations, checklists of issues to be considered, et cetera, rather than the actual important work of considering those issues,” she said.
“It’s completely unworkable, but I wish written investment strategies could be replaced by an interview with the trustees.”
To illustrate this process, she gave an example of a discussion where an accountant questions whether a portfolio that is heavily invested in property has sufficient diversification, returns, cash flow and spread of risk to meet the needs of the fund members.
“Isn’t it a shame that accountants feel they can’t play this very valuable role? If you weren’t in this industry, you’d probably be surprised that any SMSF expert accountant would worry about having this conversation,” she said.
“We’re throwing that blurred line between ‘financial product advice’ and ‘advice and education in its most general sense’ into an environment where accountants feel scrutinised at every step and paranoid about crossing the line.
“In my nirvana, an accountant would be guiding the trustee through the conversation with advice just like the above, but the trustee would be choosing exactly what to say on the investment strategy document.
“I really want that important conversation to happen because all the knowledge the accountant can share really does shape the investment choices a trustee will want to make, but none of that means the accountant is advising on investments.”
