Does an SMSF Need an Investment Strategy?


Quite often when we audit a fund we discover the fund does not have an Investment Strategy or has failed to update/review that strategy. This failure to have the correct documentation then means that the fund is non complying, a situation no trustee would want.

What exactly is involved in having an Investment Strategy? It has been common debate that an Investment Strategy need no to be written. We disagree with this viewpoint, as how do you prove/document what the strategy is if it is not written. Accordingly we advise all our clients prior to supplying their fund to us for audit to ensure that a written Investment Strategy is in place.

SIS regulation 4.09 covers what an Investment Strategy is as per below:
The trustee of the entity must formulate, review regularly, and give effect to an investment strategy that has regard to the whole of the circumstances of the entity including, but not limited to, the following:

(a) the risk involved in making, holding and realising, and the likely return from, the entity’s investments, having regard to its objectives and cash flow requirements.

(b) the composition of the entity’s investments as a whole, including the extent to which they are diverse or involve exposure of the entity to risks from inadequate diversification.

(c) the liquidity of the investments, having regard to expected cash flow requirements.

(d) the ability of the entity to discharge its existing and prospective liabilities.

(e) whether the trustees of the fund should a contract of insurance that provides insurance cover for one or more members of the fund.

As to the regularity on reviewing the strategy how often should this be done? It is up to the trustees to determine this but it is our recommendation that the strategy be reviewed at least annually. Many of our clients tend to perform the annual review in either May or June.

DISCLAIMER: The above is general advice only, you should not act on this advice without consulting a professional adviser to discuss your personal circumstances.