All SMSFs must formulate, review regularly and give effect to an investment strategy. Cleardocs has made available a comprehensive 'SMSF Investment Strategy' document package by which advisers and trustees can create an investment strategy to ensure an SMSF's compliance with the SIS Act, SIS Regulations and ATO guidance.
SIS Act and Regulations
Section 52(6) of the SIS Act and regulation 4.09(2) of the SIS Regulations, require that a trustee must formulate, review regularly and give effect to an investment strategy for the whole of the fund, and for each investment option offered by the trustee in the fund, taking into account:
- the risk involved in making, holding and realising, and the likely return from, the investments covered by the strategy, having regard to the trustee's objectives in relation to the strategy and to the fund's expected cash flow requirements;
- the composition of the investments covered by the strategy, including the extent to which the investments are diverse or involve the fund being exposed to risks from inadequate diversification;
- the liquidity of the investments covered by the strategy, having regard to the fund's expected cash flow requirements;
- whether reliable valuation information is available in relation to the investments covered by the strategy;
- the fund's ability to discharge its existing and prospective liabilities;
- the expected tax consequences for the fund in relation to the investments covered by the strategy;
- the costs that the fund might incur in relation to the investments covered by the strategy;
- whether the fund trustee(s) should hold a contract of insurance that provides insurance cover for one or more fund members; and
- any other relevant matters.
Failure to comply with these requirements may carry a penalty of up to $11,000.
Once the trustee has formulated an investment strategy, the fund's investments should be consistent with that strategy.
The ATO provides the following guidance on its website as to what trustees should consider when formulating an investment strategy:
- diversification — investing in a range of assets and asset classes;
- the risk and likely return from investments to maximise member returns;
- the liquidity of fund's assets — how easily can assets be converted to cash to meet fund expenses;
- the fund's ability to pay benefits when members retire, and to pay other costs the fund incurs;
- whether the fund should hold insurance cover for members; and
- the members' needs and circumstances.
The Cleardocs SMSF Investment Strategy product
The Cleardocs SMSF Investment Strategy document package allows you to create an investment strategy for an SMSF.
The Cleardocs document package has been drafted in contemplation of the requirements imposed by the SIS Act and the SIS Regulations. The product:
- provides a comprehensive summary of relevant trustee investment obligations under the SIS Act and SIS Regulations — this assists trustees to perform their duties in accordance with superannuation laws;
- allows the trustee to adopt a strategic asset allocation in accordance with percentage ranges;
allows the trustee to permit, or prohibit, investments in derivatives.
Generally speaking, a derivative is a financial contract or instrument that derives its value by reference to the value of other underlying securities, or other assets or indices. Examples of derivatives include swaps, options, forwards, futures, warrants, contracts for difference and other related instruments;
- if the trustee determines to permit investments in derivatives under the investment strategy, then the Cleardocs document package includes a 'Derivative Risk Statement' (DRS). The DRS:
- identifies the circumstances when derivatives may be used;
- summarises the policies and controls which must be in place in relation to use of derivatives by the trustee; and
- summarises the processes for assessing whether and how the trustee complies with existing risk management controls.
More information from Maddocks
The SMSF Investment Strategy information here should be considered general in nature, and neither the product nor the documents generated through Cleardocs should be interpreted as financial product advice. You must always seek your own independent legal, accounting and financial advice about your particular situation.
For more information on the importance of a comprehensive SMSF investment strategy, please contact Maddocks on (03) 9288 0555 and ask to speak to a member of the General Commercial team.
More Cleardocs information on related topics
You can read earlier articles on a wide range of SMSF topics.
Order SMSF related document packages
- Set up an SMSF
- Set up an SMSF corporate trustee
- Update an SMSF deed
- Set up an SMSF investment strategy
- Set up an SMSF pension
- Arrange SMSF borrowing documents:
- SMSF Death Benefit Nomination — binding or non binding
- SMSF Death Benefit Agreement — binding and permanent
- Actuarial Certificate
- SMSF Minutes & Resolutions Package