Regularly reviewing investment strategies is a statutory requirement for SMSF Trustees. The question is “what does regularly review mean”? A bigger issue is whether doing the minimum is enough, do we need to get out of an annual cycle?

Regularly reviewing investment strategies – ATO

The ATO, via, have provided us a number of instances when it is appropriate to review our Strategy. There is no doubt that right now ticks a number of boxes.  Many SMSFs would currently be finalising their end of financial year accounts, that is a no brainer review. The Transfer Balance Cap, reduced contribution caps, estate planning considerations all indicator that clients should be reviewing their strategy. The goal posts have moved so strategies need to move with them.

Risk v Reward

One critical issues that is certainly top of mind, is weighing up the risk of the investments.  As an example, are clients trying to maximise returns to compensate the reduction in contribution caps?  The Industry must ensure Trustees are aware of the risks associated with investments that appear to offer exceptionally high returns. “If it’s too good to be true, it probably is” is more often than not proven to be correct.  This will be the test for many, to have a balanced approach to their investment objectives and subsequent strategy. Make sure that the strategy doesn’t put them in a worse position than they started.

Not a day goes by without another article about cryptocurrency. Similarly, more attention is being given to Early Stage Innovation Companies and the tax offsets available for investors. There is no doubt that both these examples have the potential to provide great returns, but they are high risk. That doesn’t mean trustees should avoid them, it means they should do their due diligence, as should anyone advising them.

If we are regularly reviewing investment strategies we can adapt to changes in real time.

Segregated Assets

The introduction of the Transfer Balance Cap throws up a number dilemmas, one being disregarded small fund assets (DSFA). Funds can no longer segregate assets for taxation purposes in certain circumstances. It’s important to remember that this doesn’t mean funds can’t have individual investment strategies for members. Given DSFA rules only apply when members have a total super balance over $1.6m, funds can use this to their advantage. Segregation is still possible for tax and investment strategy purposes when both members are below the $1.6m.

Insurance in Super

Finally when contemplating an investment strategy review is the need for insurance.  Whether to hold insurance inside or outside of super is always going to be a worthwhile conversation. The reduction of contribution caps may mean members need to look at alternative estate planning options. Insurance proceeds is clearly one of those options.  There are issues with insurance and non-tax dependents that need to be weighed up. There are issues with the payment of disability benefits as an income stream. However, insurance may be the difference between meeting the funds objectives when paying beneficiaries or not.

Overall there has never been a more appropriate time for us to contemplate regularly reviewing investment strategies than right now.  I’m off to have a look at mine.

Pin It on Pinterest

Share This