Search ASX code:
Generic filters

Search ASX code:
Generic filters

Search ASX code:
Generic filters

Search ASX code:
Generic filters

SMSF trustees reset valuation strategy amid COVID-19

Annabelle Dickson explains why SMSF trustees are now resetting their expectations and strategies to value their portfolios.

Important changes to valuations for SMSF trustee portfolios following the COVID-19 outbreak marks an appropriate opportunity to review investment strategy.

Why it’s time to rethink strategy

A review of the investment strategy document in this context does not need a complete rewrite.

Nicholas Ali, executive manager of SMSF technical support at SuperConcepts, says: “It could be done as part of the annual trustee minutes, which could then be provided to the fund auditor to show the trustees have met the requirement to review regularly and, where necessary, revise the investment strategy.”

The Australian Taxation Office (ATO) recently released guidance on SMSF investment strategy reporting to discourage trustees from repeating the wording of superannuation legislation in the document, which is what happens in a lot of cases now.

Ali says: “The investment strategy should be tailored to individual fund circumstances and should not be a document merely repeating standard verbiage.

“Each fund member has a unique set of circumstances and given that the sole purpose of superannuation is the provision of retirement benefits, the investment strategy should explain how fund assets will meet each member’s retirement goals.”

The superannuation laws mandate that trustees include specific factors in their strategy, including risk profile, the composition of investments, liquidity of the fund’s assets, the fund’s ability to pay benefits and whether to hold insurance cover.

Despite this, a lot of trustees are not doing enough with their strategy which can be detrimental to their retirement savings.

When it comes to the composition of investments, the ATO stresses that trustees cannot simply specify investment ranges of zero-to-100% for each asset class.

Instead, trustees need to specify the following: “The percentage or dollar allocation of the fund’s assets invested in each class of investment should support and reflect your articulated investment approach towards achieving your retirement goals,” the ATO says.

Ali says: “Whilst we at SuperConcepts rarely see trustees put together such generic asset class ranges, it appears the strategy of using broad template ranges to ensure the investment strategy covers almost every fund asset allocation without much member input is a thing of the past.”

For those trustees who choose not to use allocated percentages in their strategy, material assets need to be listed as well as the reasons as to why these will achieve their retirement goals.

Despite this, Ali notes that there is nothing in the legislation that states trustees must use asset allocation ranges.

The ATO warns trustees that hold one asset in their fund to be aware of the legal risks associated with it. The investment must be in the best interest of all members.

In this case, the strategy should document that the risks associated with a lack of diversification have been considered.

The ATO says: “It should include how you still think the investment will meet your fund’s investment objectives including your fund’s return objectives and cash flow requirements.”

If trustees are considering longevity risk or the need for capital growth, Ali says they may in fact state in the investment strategy that they take short-term tactical asset allocation decisions that differ markedly from the longer-term strategic asset allocation position of the fund.

“Tactical Asset Allocation ranges, even 90% in one asset class, will not be an issue for the ATO. It always comes back to a requirement to justify the decision. If trustees can do that, the ATO in my view would not be concerned at all,” Ali says.

Upon the annual audit, the auditor will check the investments were aligned with the strategy and that the strategy was reviewed within the financial year.

In the event that the strategy is not compliant with the requirements, the auditor may lodge a contravention report.

However, failure to address factors such as the risk of a lack of diversification can be remedied by attaching a signed and dated addendum to the strategy or a trustee minute which adequately addresses the requirements.

If the investment breaches the super laws, the ATO can apply penalties and potentially disqualify the trustee.

This article was written by Annabelle Dickson, writer for Inside Adviser. 

Are you stuck wondering where to invest right now? Have you got cash 'sitting on the sidelines'? Are you looking for dividend income AND growth but don't know where to start? Rask's expert ASX analyst team has just released a full report, detailing where we'd invest $10,000 right now.

Not only are we offering these 11 investment ideas completely FREE, we've also released an in-depth podcast to go with the report!

So, whether you have $2,000 or $50,000, our brand new analyst report could help transform your watchlist. Right now, you can get the full analyst report emailed to you for FREE by CLICKING HERE NOW or simply entering your email below.

Unsubscribe anytime. Read our TermsFinancial Services GuidePrivacy Policy. We’ll never sell your email address. Our company is Australian owned.

Are you stuck wondering where to invest right now? Have you got cash 'sitting on the sidelines'? Are you looking for dividend income AND growth but don't know where to start? Rask's expert ASX analyst team has just released a full report, detailing where we'd invest $10,000 right now.

Not only are we offering these 11 investment ideas completely FREE, we've also released an in-depth podcast to go with the report!

So, whether you have $2,000 or $50,000, our brand new analyst report could help transform your watchlist. Right now, you can get the full analyst report emailed to you for FREE by CLICKING HERE NOW.

Information warning: The information on this website is published by The Rask Group Pty Ltd (ABN: 36 622 810 995) is limited to factual information or (at most) general financial advice only. That means, the information and advice does not take into account your objectives, financial situation or needs. It is not specific to you, your needs, goals or objectives. Because of that, you should consider if the advice is appropriate to you and your needs, before acting on the information. If you don’t know what your needs are, you should consult a trusted and licensed financial adviser who can provide you with personal financial product advice. In addition, you should obtain and read the product disclosure statement (PDS) before making a decision to acquire a financial product. Please read our Terms and Conditions and Financial Services Guide before using this website. The Rask Group Pty Ltd is a Corporate Authorised Representative (#1280930) of AFSL #383169.

LIVE ASX Chat - Join in!

Play Video

Keep reading:

Rask Analyst’s $10,000 Hypothetical Portfolio 

Rask Australia’s expert analysts have just released 11 stock & ETF positions they’d buy right now as part of a $10,000 hypothetical portfolio. 

Completely free, this report comes with the exact ticker codes, how much the analysts would invest and a detailed over the company and why we like it. Plus a 60-min podcast! 

Simply enter your email address and we’ll send you the report.

Unsubscribe anytime. Read our TermsFinancial Services GuidePrivacy Policy. We’ll never sell your email address. Our company is Australian owned.