Trustee expertise must fit under rules

trustee investment expertise

Trustees can use their own expertise to formulate an investment strategy, but still have to provide reasons for any large positions they may hold.

SMSF trustees with a particular expertise in relation to investment assets can apply that knowledge to their investment strategy and point to it as a basis for taking a large position in a single asset or asset class, according to an SMSF expert.

Smarter SMSF chief executive Aaron Dunn there was merit in recognising any relevant skills of an SMSF trustee, such as a real estate agent investing in property, when creating an investment strategy, but consideration also had to be given to the diversification requirements.

“Those skills are important in the context of putting together a strategy and the whole approach is that talk about the investment process, the review process, the monitoring process, and it helps people understand what it looks like and gives some context,” Dunn said during his firm’s recent 2022 SMSF Day in Sydney.

“What we then have is that trustees may engage in investments based on their experience, but we still ask: ‘Why have you done what you’ve done?’

“The answer does not need to be long-winded, and in the example above the reasons why the trustees have done something can be: ‘We have invested in property because I am a licensed real estate agent, I know property and markets, and have got the expertise in that and that’s what I am comfortable with.’”

He said an auditor was unlikely to question this reasoning for investing, but may ask further questions around diversification and asset concentration, particularly if the SMSF was to be heavily weighted into a sector.

“If the trustees’ investments are going to be heavily weighted because that is what they might feel most comfortable with and they believe that they could meet their retirement objectives, part of that discussion could be about asset concentration,” he said.

“Equally, it could form part of the implementation discussion as to why they are doing certain things in terms of how they invest for their long-term benefit and that could include whether they are more proactive themselves because of their expertise or whether there are others involved that form part of that expertise.”

Copyright © SMS Magazine 2024

ABN 43 564 725 109

Benchmark Media

Site design Red Cloud Digital