The most critical document for a self-managed superannuation fund (SMSF) is the trust deed. However there is another article that is just as critical in the running of a fund but receives a lot less attention – the investment strategy.
Every SMSF is required to have a written investment strategy that provides the trustees with a framework as to how the investment decisions for the fund will be made. Naturally the strategy has to comply with the Superannuation Industry Supervision (SIS) Act.
Often trustees have had a bit of a set and forget attitude toward the investment strategy much to the regulator’s frustration.
But not anymore because another recent amendment to the SIS Regulations has rendered this approach a thing of the past.
SIS Regulation 4.09(2), being the investment strategy operating standard, has incorporated a few new clauses dictating SMSF trustees must now not only formulate an investment strategy but also review it regularly.
The Australian Taxation Office has not defined the term “regularly” but industry commentators have interpreted it to mean a review has to take place at least annually.
In addition when examining this area trustees will have to take into account the whole of the circumstances of the fund.
In making the operating standard amendments the regulator wanted to tackle another area of concern and that is the issue of under insurance.
Unlike other forms of superannuation SMSFs don’t have readymade risk cover options for their members and as such traditionally the trustees have had to consciously put these facilities in place.
It meant the less vigilant trustees in the past could, deliberately or not, overlook this facet of super without consequence from a compliance perspective.
But SIS Regulation 4.09(2)(e), a new inclusion, means SMSF trustees must consider if the fund should provide risk insurance coverage for one or more of its members.
This doesn’t mean insurance must be provided, just considered, but the individual circumstances of each member must be taken into account.
These changes took effect from August last year and advisers assisting SMSF trustees to formulate the investment strategy need to be wary of the insurance requirement so as to make certain they have the requisite skills and the proper licence to provide risk advice as well as broader investment advice.
Darin Tyson-Chan is the 2012 SPAA Trade Media Journalist of the Year. He is the editor of self managed super, a new publication dedicated to the SMSF practitioner.
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