SMSF trustees can simplify investment strategies by removing excessive details, which may improve the chances of passing an audit, a specialist auditor has noted.
Elite Super managing director Katrina Fletcher said a concise and focused approach to crafting strategies is essential and stressed the importance of aligning with legal and regulatory requirements while avoiding excessive complexity.
“Keep the strategy short. We’ve found over the years that 20-odd pages is not beneficial. A few short accurate pages is better for the trustees to understand what they are signing and it’s easier for us to audit,” Fletcher told delegates at the 2023 SMSF Association Audit Day held yesterday.
“More often than not, you’ll have pushback with your auditors on those sort of strategies because somewhere in the body of the strategy it may conflict with what’s mentioned on the last page.
“For example, we often see the member state somewhere in the body of the strategy that they are balanced investors and they want a well-diversified portfolio. Then on the last page it says that the trustees have decided to invest in 95 per cent geared property, which is a complete conflict to the body of the strategy.
“Keep it short, keep it to a few pages so everyone can understand it, make sure it covers off the key elements of the SIS (Superannuation Industry (Supervision)) Regulations and that’s a great way to proceed.”
To that end, she provided several practical steps trustees and practitioners can take to streamline their investment strategies and enhance their prospects of successfully passing an audit.
“Consider removing the [investment] ranges from the strategy because sometimes they are not helpful, they are too restrictive and cause issues. You don’t need ranges, so you can take them out and they are not compulsory,” she said.
“Remove any detailed investment return paragraphs because they are difficult if not impossible to audit. For example, [an investment return paragraph may state] 2 per cent above the consumer price index (CPI) for a five-year period allowing for a period of losses over one or two years. That’s basically impossible to audit even if I tracked the five years in my audit file for the client.
“That level of detail does not need to be in a strategy. All the law requires you to do is to put in a paragraph about investment returns. Even if you had a widely diversified fund with listed shares and some term deposits, if you just said the ‘trustee aims to make a return above CPI’ that would pass,” she said.
“[Also] remove any trustee discretion paragraph. The trustee has to comply with the strategy, it’s not optional. So any of these discretion paragraphs are useless and if you see them in any strategies now, just remove them because no one can rely on that.”