The Superannuation Industry (Supervision) Act (SIS) maintains that it is imperative for the trustees of a Self-managed Super Fund (SMSF) to have an investment strategy within the fund, but it has been noticed that there are many SMSFs that actually lack this.
Even the ones that do have an investment strategy generally structure it very vaguely without any clear-cut objectives or action plan.
The first thing the Trustees should ask themselves is “Does our Trust Deed permit us to carry out those investment strategies? “
With recent changes made in regulation, SMSF Trustees also need to modify their approach while conducting a review of their investment strategies. One of the major things they need to do now is to confirm whether they have considered Life and TPD insurance within their SMSF.
Some Trustees merely record in their minutes that they have considered insurance as part of their SMSF and sometimes they simply sign off on standard printed documents provided by the SMSF administrators. The issue is justifying and satisfying authorities that you have considered insurance if you are not even holding cover outside your SMSF and you have liabilities to meet towards the members and family.
It is important that appropriate documentation is maintained as evidence that all regulations have been complied with in the strategy.
If trustees invest in assets that are not permitted by the investment strategy, it is a breach, and under these circumstances, trustees have two options:
- Dispose of the assets and reinvest those funds in permitted investments under the strategy,
or
- Amend the SMSF strategy to permit that particular investment provided it is in the best interests of the fund and is approved by all the trustees.
Any contraventions discovered by the SMSF auditors will have to be corrected by the trustees, and any resulting financial loss will have to be borne by the members personally and NOT by the SMS.
It is important that trustees properly structure their investment strategies and other compliance documentation. As with increasing costs of possible penalties, many trustees are now seeing the benefit of doing it the right way in the first place.
– Vikram Singh CA-Financial Planning Specialist, ADFP