SMSF practitioners and their clients should not confuse the need to review a fund’s investment strategy at least once a year or whenever a major change occurs within the fund with being required to make any changes to that strategy, a technical specialist has noted.
“At least annually we need to make sure we’ve reviewed [the fund’s investment strategy]. Again, that doesn’t mean we need to update it or change it, we just need to have an annual minute or annual note that we’ve reviewed it and it’s still appropriate,” BT Financial Group advice strategy and technical specialist Tim Howard told attendees of a recent technical webinar.
Howard said the same approach applies when there are major changes in the administration and management of a fund and outlined scenarios that may require a review of an SMSF’s investment strategy.
“Firstly, a market correction that goes beyond something that is a short-term change might require a review of the investment strategy, particularly if some of the fund’s members are moving towards the drawdown or retirement phase,” he said.
“When a new member joins the fund, that’s going to result in not just new monies coming into the fund, but it’s also going to result in a new member that might have a different risk appetite, a different investment time horizon when we may need to consider a different investment strategy overall for the fund [and] accommodate what their needs and objectives are.
“When a member commences a pension, there’s going to be a liquidity requirement [in order] to at least pay out the minimum pension payment each year, so making sure that there is liquidity to do that [is] obviously a key consideration.”
Where a member leaves a SMSF, he said practitioners should assess the fund’s current assets in order to ensure compliance with the diversification and liquidity requirements outlined in the Superannuation Industry (Supervision) Act.
“Similarly, when a member exits the fund, there is going to be a requirement to roll out their member benefit. If we have a member leaving who has a large benefit in the fund, that is going to result in the need to realise some of the fund’s investment assets [and] we may be in a position where we need to consider how we are going to manage illiquid assets such as real property,” Howard said.
“Finally, when a member passes away, there is a requirement for the fund to cash the member’s death benefit as soon as practical. As soon as practical is not defined, but it’s generally accepted within six months of their date of death.”