Investment Strategy - Self Managed Superannuation Funds

Peter Larkin from Alps Network Pty Ltd (details below) has kindly prepared the following summary detailing what an investment strategy is and what elements it must contain. An investment strategy is not just a piece of paper that sits in the draw – it is the Trustee’s road map for the fund’s investments, to enable the Trustee to achieve the retirement income objectives of the members of the fund. Actual investment results should also be measured against this plan.

WHAT IS AN INVESTMENT STRATEGY?

An Investment Strategy is a plan for making, holding and realising assets consistent with the investment objectives of the members of the fund and every SMSF is required to have one (Superannuation Industry (Supervision) Act 1993 (Cth) (‘SISA’) s 52(2)(f)).

Under the Superannuation Industry (Supervision) Act 1993 (“SIS Act”) the Trustee is solely responsible and directly accountable for the management of the members’ benefits and has a duty to make, carry out and document decisions about investing the assets of the fund. This duty involves formulating and implementing an investment strategy and is prescribed in the SIS Act as a covenant (an obligation of the Trustee).

The strategy should detail why Trustees invest the way they do and also how the Trustees intend to achieve the fund’s sole purpose (ie providing retirement benefits for the members of the fund upon retirement, etc). An investment strategy that has specific objectives and is reviewed on a regular basis is imperative to achieving this responsibility.

The investment strategy must take into account all the circumstances of the fund, including:

  1. the risk involved in making, holding and realising the SMSF's investments, and the likely return from these investments, having regard to the SMSF’s objectives and its expected cash flow requirements;
  2. the composition of the SMSF's investments as a whole, including the extent to which the investments are diverse or involve the entity in being exposed to risks from insufficient diversification;
  3. the liquidity of the entity's investments having regard to its expected cash flow requirements, for example: payment of tax, superannuation surcharge liability of the members, lump sum benefits if a member leaves the SMSF, or regular pension payments;
  4. the ability of the SMSF to discharge its existing and prospective liabilities.

There are no set rules for when your Fund’s documented Investment Strategy must be updated, but it should be reviewed regularly.

If your Fund’s investments do not comply with the Funds Investment Strategy, the Australian Taxation Office may apply penalties to your Self Managed Superannuation Funds.