SMSF Investment Strategy Review

Regulation 4.09 of the Superannuation Industry (Supervision) Regulations requires the trustees of every SMSF to formulate, regularly review and give effect to an investment strategy. The strategy must have regard to the whole circumstances of the fund, including the risk and likely return of the investments, the diversification of the fund, the liquidity of the assets, the fund ability to discharge its existing and prospective liabilities (such as paying pensions and expenses), and whether the trustees should hold insurance for one or more members. It is not a one-off document; it is a live record of the trustees decisions that must reflect what the fund is actually doing.

No. We document and review the investment strategy as a compliance requirement under the SIS Regulations. We do not recommend specific investments, asset allocations or products, and we are not licensed to provide personal financial product advice. The underlying investment choices belong to the trustees. Where members want personal advice on what to invest in, on asset allocation, or on whether a particular asset suits their objectives, that advice should come from a licensed financial adviser holding an AFSL. Our role is to make sure the trustees decisions are recorded in a compliant, defensible form.

The SIS Regulations require the strategy to be reviewed regularly, and the ATO expects trustees to review it at least annually and to document that review. A review is also expected whenever a significant event changes the circumstances of the fund. The auditor will look for evidence that the trustees considered the strategy during the year, not merely that a document exists on file. A signed minute recording the review, the date, and any decisions made is the practical evidence we help produce each year.

Several events should prompt a review before the annual cycle. These include a new member joining or a member leaving, the commencement of a pension, a large contribution or rollover, the acquisition or sale of a major asset (for example a property), a fund that has become heavily concentrated in a single asset class, a change in a member personal or insurance circumstances, and any change in the law affecting the fund. If the fund holds a single large asset such as a property, the trustees should specifically document why that concentration is consistent with the members retirement objectives.

No. The regulation requires the trustees to have regard to diversification; it does not mandate it. A fund can hold a single asset class, or even a single asset such as a property, provided the trustees have genuinely considered the risks of that lack of diversification and documented why it is appropriate for the members circumstances. Where a fund is concentrated, the ATO and the auditor expect a clear written explanation addressing the higher risk, the liquidity implications, and how the fund will still meet its liabilities. We help trustees articulate and record that reasoning.

Since 2012 the SIS Regulations have required trustees to consider whether the fund should hold insurance cover for one or more members as part of formulating the investment strategy. This does not mean the fund must hold insurance; it means the trustees must consider the question and record their decision either way. The strategy document should note that insurance was considered and state the outcome. We make sure this consideration is captured so the fund does not fail audit on a missing insurance statement.

The independent SMSF auditor tests compliance with the SIS Regulations, including Regulation 4.09. A missing, generic or out-of-date investment strategy, a strategy that does not reflect the fund’s actual investments, or no evidence of an annual review can lead to the auditor raising a contravention and, where material, lodging an Auditor Contravention Report with the ATO. That can attract ATO attention and, in serious cases, penalties. Keeping the strategy current and the annual review documented is a straightforward way to avoid an avoidable contravention.