Reviewing your SMSF investment strategy

What the investment strategy is

It’s the fund’s plan for making, holding and selling its investments, and why those investments suit the members’ retirement goals. The ATO says it should be in writing, tailored to your fund and its members (their ages, whether they’re working, and what they’ll need in retirement), and not simply a repeat of the law. There’s no set format.

What it has to consider

• The risk of the fund’s investments, and the return they’re likely to make.
• How varied the investments are, and the risks of not spreading them enough.
• Liquidity: how easily assets can be turned into cash to pay the fund’s costs and the members’ benefits, such as a pension.
• Whether the fund should hold insurance (such as life or disability cover) for each member.

The ATO also warns against two shortcuts:

• Setting a range of 0 to 100% for every type of investment isn’t enough on its own. The strategy needs to say how you plan to invest, and why broad ranges are needed.
• A standard template may not meet the rules unless it’s tailored to your fund.

If most of the fund is in one asset

You can invest most of the fund in one asset, such as a property, but the strategy should record that you considered the risk of not diversifying, and explain how the investment still meets the fund’s goals, including its returns and cash needs. The ATO notes the risk is higher if the fund borrowed to buy the asset.

When to review it

At least once a year, and also after a significant change, for example:

• a large fall in the market;
• a member joining or leaving the fund;
• a member starting a pension, because the fund then needs enough cash to pay the minimum each year.

Recording the review

Write down that the review happened and what was decided, even if the decision was to change nothing. The ATO suggests doing this in the minutes of the trustees’ annual meeting. Give the record to your auditor, who will check that the fund had a strategy for the year, invested in line with it, and reviewed it during the year. Keep the strategy and its reviews for at least 10 years.

If the auditor finds a problem

If the strategy didn’t properly cover one of the points above, the ATO says you can fix it with a signed and dated addendum to the strategy, or a trustee minute that deals with it, shown to the auditor before the audit is finished. If the fund didn’t invest in line with its strategy, revise the strategy so it matches. Some breaches must also be reported to the ATO by the auditor.

How SMSF Cockpit helps, and where it stops

The Investment Strategy page holds the written strategy (objectives, attitude to risk, expected return, time horizon and cash needs), the target and actual asset allocation, the trustees’ assessments of liquidity and liabilities, and a record that the fund is run for the sole purpose of providing retirement benefits. Each review is signed off in a log that can’t be edited or deleted afterwards. The page flags a review that is overdue, or an allocation that doesn’t add up to 100%.

What it doesn’t do: it records the strategy and its reviews, but doesn’t judge whether the strategy is adequate, and it isn’t investment advice. It counts a review as current for 12 months and warns 60 days before, and it compares the allocation with a tolerance band (5% either way, adjustable). Those are the app’s own settings: the law says “regularly”. It doesn’t track your investments, so the actual allocation is whatever you enter.