End of Financial Year Self-Managed Super Fund Checklist
End of Financial Year Self-Managed Super Fund Checklist

In this article we look at the importance of ensuring an SMSF is invested in accordance with the Investment Strategy. A simple example of an Investment Strategy showing how the SMSF should be invested (and actually is at a point in time) is as follows

Self-Managed Superannuation Funds (SMSF) are now the largest segment of the Superannuation Industry.

Source: APRA data December 2016
(1) Excludes RSE licensees and Retirement Savings Accounts (RSA), includes Exempt Schemes 
(2) Excludes RSA of $1.7BN

All SMSFs must have an Investment Strategy, which must be in writing, and must be reviewed regularly. Broadly, an SMSF Investment Strategy:

  • Specifies the Objectives
  • States the Risk tolerance
  • Outlines how the SMSF can and should be invested so as to meet the Objectives
  • Specifies what Liquidity is required, and
  • Addresses any Insurance needs for Members.

In this article we look at the importance of ensuring an SMSF is invested in accordance with the Investment Strategy. A simple example of an Investment Strategy showing how the SMSF should be invested (and actually is at a point in time) is as follows;

High Growth Portoflio Investment Strategy

Asset Class Range Mid-point Actual Adjustment
Cash (AUD) 0% to 20% 10% 30% -20%
Fixed Interest 0% to 20% 10% 0% +10%
Listed Property 0% to 20% 10% 5% +5%
Equities 55% to 85% 70% 65% +5%
    100% 100% 0%

Asset Classes may contain Australian and International exposure as detailed in the Investment Strategy. For simplicity the sub Asset Classes are not included above. The Mid-point is exactly half way in the specified Range.

In the example above, the SMSF:

  1. Is not invested in accordance with the Investment Strategy in relation to Cash, and
  2. Is invested in accordance with the Investment Strategy  in relation to Fixed Interest (as 0% is permissible), Listed Property and Equities

In this example, the SMSF should reduce its Cash holding by at least 10% – to be at the 20% Upper Range for Cash – and invest in any of the other Asset Classes.

Ideally, the SMSF Trustee could rebalance by making the changes shown in the Adjustment column above. That is, reduce Cash by 20% to be invested in accordance with the Investment Strategy and also be at the Mid-point for each Asset Class.

How often should I check and potentially rebalance my Australian Equities Portfolio to be invested in accordance with the SMSF Investment Strategy?

SMSF Trustees should review their Australian Equities Portfolio at least annually in the period leading up to the end of the Financial Year. Some SMSF Trustees review and rebalance their Portfolio if required at mid-Financial Year (that is, by 31 December). We suggest that it is preferable to have a reasonable period of time in which to make changes and rebalance the Portfolio, rather than make last minute changes.
On 1 July 2017 it will be too late to rebalance your Portfolio if required to ensure it is invested in accordance with the SMSF Investment Strategy on 30 June 2017. All SMSFs must be audited annually by an ASIC Registered SMSF Auditor. If an SMSF is not invested in accordance with the Investment Strategy, the Auditor will note this.
Source: Australian Taxation Website, Your Investment Strategy (www.ato.gov.au/super/self-managed-super-funds/investing/your-investment-strategy/)

Important issues to note

  • If the SMSF is periodically rebalanced to the Mid-point for each Asset Class, short term variations in the values of some investments are less likely to result in the SMSF not being invested in accordance with the Investment Strategy (that is, being within the stated Range for each Asset Class).
  • The Range for each Asset Class should not be too wide. A range of 0 to 100% or 0 to 50% for each Asset Class is not advisable as this would likely not reflect the Risk Profile and so not assist the SMSF to meet the Objectives.
  • The Range for each Asset Class should not be too narrow. With a very narrow range, the SMSF loses the ability to make substantial changes to the level of holdings in a particular Asset Class at any given point in time. Also, a narrow range might mean that movement in the values of some investments necessitates larger Asset Class adjustments on rebalance which may not always be in the best interests of the Member(s). The SMSF might also incur higher transaction fees.
  • From 1 July 2012, the SMSF Investment Strategy must be reviewed “regularly”. Whilst there is no regulatory guidance on what “regularly” means, it would be sensible to consider this issue annually. Certainly when there is a change to the Objective of the SMSF, such as commencing a Pension, or as the requirement to draw the minimum pension amount increases, the Investment Strategy should be reviewed.

Your SMSF Accountant (Tax Agent) and your Patersons Wealth Adviser both have a role to play assisting SMSF Trustees ensure that their SMSF is invested in accordance with the Investment Strategy.

Your Patersons Wealth Adviser has an end of financial year SMSF Checklist which may assist SMSF Trustees ensure that their SMSF is invested in accordance with their Investment Strategy. Please contact your Wealth Adviser for further details.

Note: This article is intended to provide general advice only, and has been prepared without taking account of your objectives, financial situation or needs, and therefore before acting on advice contained in this document you should consider its appropriateness having regard to your objectives, financial situation and needs. If any advice in this document relates to the acquisition or possible acquisition of a particular financial product, you should obtain a copy of and consider the Product Disclosure Statement for that product before making any decision.

Note: This article is intended to provide general advice only, and has been prepared without taking account of your objectives, financial situation or needs, and therefore before acting on advice contained in this document you should consider its appropriateness having regard to your objectives, financial situation and needs. If any advice in this document relates to the acquisition or possible acquisition of a particular financial product, you should obtain a copy of and consider the Product Disclosure Statement for that product before making any decision.