ATO Can Fine SMSF Trustees If Investment Strategy Doesn’t Meet Their Requirements

Does your SMSF investment strategy meet diversification requirements?

ATO contact with SMSF Trustees

Recently the ATO contacted about 17,700 self-managed super fund (SMSF) trustees and their auditors where their records indicated the SMSF may be holding 90% or more of its funds in one asset or a single asset class.

They were concerned some trustees haven’t given due consideration to diversifying their fund’s investments; this can put the fund’s assets at risk.

Lack of diversification or concentration risk, can expose the SMSF and its members to unnecessary risk if a significant investment fails.

They were wanting trustees to review their investment strategy and clearly document the reasons behind the investment decisions.

Trustees are ultimately responsible for insuring the investment strategy meets the requirements under the law and they could be fined an administrative penalty of $4,200 for non-compliance

The ATO requirements of an SMSF Trustee 

Before you start making investments you must have an investment strategy. This sets out your fund’s investment objectives and specifies the types of investments your fund can make. Your investment strategy should be in writing and must:

  • be reviewed regularly to ensure it continues to reflect the purpose and circumstances of your fund and its members (your review and any decisions made should be documented)
  • consider whether to hold insurance cover (such as life insurance) for each member of your SMSF

Review Your SMSF Investment Strategy

When preparing and reviewing your investment strategy, take into account the personal circumstances of all the fund members, including their age and risk tolerance. You need to consider:

  • diversification (investing in a range of assets and asset classes)
  • the liquidity of the fund’s assets (how easily they can be converted to cash to meet fund expenses)
  • the fund’s ability to pay benefits (when members retire) and other costs it incurs
  • the members’ needs and circumstances (for example, their age and retirement needs

As of 1 July 2016 only Licensed Financial Advisors can provide advice in relation to the contents of a Superannuation Fund investment strategy.

Wilson Pateras Financial Planning has a team of Financial Advisors who can help create your investment strategy and at the same time review your fund’s performance with you.

If you would like to discuss your investment strategy, please fill in the form below and we will get back to you as soon as possible.

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