SMSF investment strategy health checklist

All good SMSF trustees know that they need an investment strategy; after all, it’s part of the requirements of setting up an SMSF. But how comprehensive is yours? Is it just a couple of handwritten paragraphs on a piece of paper?

If it is, it might be time to type something up that starts with the names and ages of all the members, along with their retirement objectives and whether they are in pension or accumulation phase. There’s a lot more that needs to be in there as well as the following points highlight. 

2. Is it up to date and do you review it regularly?

When was the last time you looked at or considered the investment strategy of your SMSF? Has it been a set and forget strategy? Do you just ok the same strategy every year at your annual review? Even if your fund has been performing well you need to consider whether or not your investment strategy still meets your needs. You might be a lot closer to retirement now than when you established your fund and you may need to take a more conservative approach to investments.

Alternatively, if you have plenty of time before retirement you may need to consider a more growth-oriented approach. An investment strategy is something the Australian Taxation Officer wants reviewed at least annually and a half-yearly once over is a good idea for responsible trustees. Reviews should be scheduled in the investment strategy document.

3. Is the asset allocation still appropriate?

As mentioned above, if some members are getting close to retirement a more conservative asset allocation – that invests in more income assets, such as cash and fixed income – may need to be considered. The equity allocation of a fund may need to be dialled back if conserving capital in retirement becomes a priority.

This is even more important if members have recently transitioned to pension phase. Not only is a more conservative asset allocation required to preserve capital, a liquid balance needs to be kept in order to make pension payments to members regularly.

4. Do you need to rebalance?

Even if you are reasonably happy with your asset allocation, you may need to balance your investments as a result of market movements. If one of your investments has had a very good year, in comparison to other investments which may have just had an ok year, that investment may now account for a much larger proportion of your portfolio than you originally stipulated in your asset allocation.

If you want to maintain that asset allocation, you will need to sell down some of that asset and reallocate funds to other investments. Alternatively, you can amend your asset allocation but you will need to explain why.

5. Are all investments allowed under your fund’s trust deed?

If you have recently invested in, or are considering an investment in, a property for your SMSF, or another new type of investment, you need to confirm that your trust deed allows for such investments. Some trust deeds, particularly off-the-shelf ones, may not. As a trust deed is a legal document, any amendments need to be made by somebody competent to do so, such as a solicitor.

6. How long since you considered insurance needs of members?

Investment strategies also need to consider the insurance coverage of members and include a statement that explains why the fund has taken out insurance for members or why the trustees do not think they need to do that (for example having sufficient insurance outside the fund).

However, as we age and our needs grow and change, so do our insurance requirements. It’s important to consider if your cover is enough every time you review other aspects of your investment strategy – i.e. ideally every six months.

7. Have you minuted any changes?

If, as a result of our checklist, you do make some changes to your investment strategy, it’s very important that you make a note of it in a trustee minute. This can be a relatively simple document but it is important to have the change, and why the change was made, in writing and on record.

8. Is it filed appropriately?

Your investment strategy document is as important as your fund’s trust deed and should be filed with it. If it is kept with your accountant or another professional it is very important that you also keep a copy of both documents that you can locate easily. These documents need to be audited annually as part of your annual review and any suggestions or recommendations from your auditor need to be acted upon. 

The bottom line

We hope this checklist has been a helpful tool to review your investment strategy. If you do make changes as a result of this checklist, don’t forget to document them in a trustee minute.