Maintain Your SMSF Investment Strategy

Cameron Hemming, National Business Development Manager

There has been a marked increase in the number of articles and blog posts about the ATO’s focus on SMSFs to ensure they are compliant with the SIS Act — that is, that they are not breaking the rules and that they are being audited properly. With recent ATO data showing that in 2009 the number of non-compliant SMSFs increased 4 times over 2008 to 99 non complying funds, it is easy to understand why there are such headlines like:

“Self-managed super in the ATO sights”

“ATO crackdown on DIY super funds”

However, I believe the SMSF industry and the media are only addressing half the problem. They look at the establishment of the deed and the SMSF’s compliance. But they ignore the SMSF’s investment strategy. My thoughts were vindicated at the SPAA conference last month when Jeremy Cooper, Chair, The Review Panel said

"If there is one area where there might be room for improvement, it is in asset allocation. There are countless studies showing that this is where the real money comes from; rather than market timing, stock-picking or manager selection in the case of managed investments.”

SMSF trustees are in a position to take advantage of investment opportunities, as such, the significance of maintaining a sound investment strategy through asset allocation is paramount. SMSF trustees need to be mindful of the sole purpose test. The primary objective of the SMSF investment strategy is for the members to have sufficient funds to be paid benefits at retirement (or their dependents in the case of the member’s death).

This, I believe, provides a clear opportunity for financial advisers to assist SMSF trustees in their quest to optimise retirement through a growing SMSF. Without quality advice, SMSF trustees are at risk of investing their funds in unsound investments that could deplete or even wipe out their superannuation completely. As SMSF trustees tend to have come from investing their superannuation in managed funds — for example, retail funds or industry funds — where their super is in the hands of qualified, experienced investment managers, they are generally not experienced investors. I am sure many SMSF trustees learnt the hard way when the GFC hit. This is probably why many are leaving a high proportion of their funds in cash. Government statistics summary showed that as at 30 June 60% of SMSF assets were in cash. (http://tinyurl.com/Super-Sytem-Review)

To find out more about the responsibilities of an SMSF trustee you can read a Cleardocs blog written by a colleague of mine, Danni Kirwan at:

Self Managed Superannuation – With Greater Control Comes Greater Risk