Investment Strategy for Self Managed Super

Fully compliant with 1 July 2007 Commonwealth legislation being the "Plan to Simplify and Streamline Superannuation"



You get a knock at the door. They flash their badge. It is the ATO coming to “help” you with your Self Managed Super Fund. The first thing they look at is your Investment Strategy. Is it up to date? Is it complying with all the latest rules for this year?

What is an Investment Strategy?

It is a strategy which is aimed at the investments of the Self Managed Super Fund (“SMSF”) to achieve a desired outcome and a minimum level of performance.

It is a plan for making, holding and realising the Fund’s assets consistent with the Investment Objective of the Fund.

Why does my Fund need an Investment Strategy?

Under the Superannuation Industry (Supervision) Act 1993 (“SIS Act”) the Trustee of the SMSF is solely responsible and directly accountable for the management of the members’ benefits.

The trustee has a duty to make, carry out and document decisions about investing the assets of the fund and to carefully monitor their performance. This duty involves formulating and implementing an investment strategy. This important duty is prescribed in the SIS Act as a covenant (an obligation of the trustee).

The investment strategy must have regard to the whole of the circumstances of the Super Fund, including:

(i) the risk involved in making, holding and realising the SMSF's investments, and the likely return from these investments, having regard to the SMSF’s objectives and its expected cash flow requirements;

(ii) the composition of the SMSF's investments as a whole, including the extent to which the investments are diverse or involve the entity in being exposed to risks from insufficient diversification;

(iii) the liquidity of the entity's investments having regard to its expected cash flow requirements, for example: payment of tax, superannuation surcharge liability of the members, lump sum benefits if a member leaves the SMSF, or regular pension payments;

(iv) the ability of the SMSF to discharge its existing and prospective liabilities.

The purpose of this obligation is:

• to protect the members’ retirement benefits;

• to minimise the risk of irresponsible or incompetent investments; and

• to ensure investments are made in accordance with the sole purpose and investment provisions of the SIS Act.

Under this approach to managing the investments, the Trustee should implement a due diligence process promoting well thought-out and responsible decision making. This also protects the Trustee from action by members if the investments turn out to be disastrous.

WARNING

If you don't have a valid and complying "investment strategy" then the ATO may state that your self managed super fund is non-complying.

Checklist is not available for this document.

Download the Investment Strategy for Self Managed Super Sample

Fund Name
• The Name of your SMSF
• What is an Investment Strategy?
• What about 0 -20% in International shares etc...?
• Why does my SMSF need an Investment Strategy?
• The purpose of the Investment Strategy
• Will this Investment Strategy work for my SMSF?
• Who is allowed to prepare a SMSF strategy?
• Has the ATO signed off on the wording of this Investment Strategy?
• How long is this Investment Strategy?
• I have 20 Super Funds, can I just buy one?
Period
• Can I choose to cover more than one financial year?

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Fund Name

• The Name of your SMSF

  Please put down the name of your Self Managed Super Fund.
  
  For example:
  
  The George Smith Superannuation Fund. (Don't forget the words "The" and "Fund" are already in the document. Don't type it in again.)

  This hint is provided by Civic Legal.

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• What is an Investment Strategy?

  It is a strategy which is aimed at the investments of the Self Managed Super Fund to achieve a desired outcome and a minimum level of performance.
  
  It is a plan for making, holding and realising the Fund’s assets consistent with the Investment Objective of the Fund.

  This hint is provided by Civic Legal.

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• What about 0 -20% in International shares etc...?

  You generate the document. You then print it out. You then hand write how you want to invest.
  
  That will change from time to time.
  
  For example, you may want 0 - 80% in Australian Shares. Next month you move to 84% in Australian shares. Therefore, you print out another copy of your Investment Strategy - for free. You then hand write say "0 - 90%" in Australian shares.
  
  These may change all the time and you have the power to change the mix of investments as you see fit - as often as you like. Just make sure that your Investment Strategy allows for those investments.
  
  One last bit of advice. The investment mix is a financial planning question. Only licensed financial planners can give this type of advice. They are pretty clever people and you will get good value for money my investing in a financial planner and asking for some help on what is good to invest in and what isn't good to invest in. Everyone is different and has different needs.
  

  This hint is provided by Civic Legal.

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• Why does my SMSF need an Investment Strategy?

  Under the Superannuation Industry (Supervision) Act 1993 (“SIS Act”) the Trustee of the SMSF is solely responsible and directly accountable for the management of the members’ benefits.
  
  The trustee has a duty to make, carry out and document decisions about investing the assets of the fund and to carefully monitor their performance. This duty involves formulating and implementing an investment strategy.
  
  This important duty is prescribed in the SIS Act as a covenant (an obligation of the trustee) - section 52(2)(f) of the SIS Act.
  

  This hint is provided by Civic Legal.

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• The purpose of the Investment Strategy

  The purpose of the obligation to have an Investment Strategy is:
  
  - to protect the members’ retirement benefits;
  
  - to minimise the risk of irresponsible or incompetent investments;
  
  - to ensure investments are made in accordance with the sole purpose and investment provisions of the SIS Act;
  
  - to protect the Trustee from action by members if the investments turn out to be disastrous.
  

  This hint is provided by Civic Legal.

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• Will this Investment Strategy work for my SMSF?

  After you finish creating this Investment Strategy document, you can use it as an investment strategy for your SMSF.
  
  You do not need to change any wording (other than the investment percentages) in the document. The document will set out the Investment Objective, the Trustee obligations and the investment percentages for various classes of assets. These percentages are a suggestion only.
  
  You can change that investment spread as you see fit, as often as you need to, to suit the circumstances of your particular SMSF.

  This hint is provided by Civic Legal.

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• Who is allowed to prepare a SMSF strategy?

  Only licensed financial advisers and the clients themselves are legally allowed to prepare up an investment strategy.

  This hint is provided by Civic Legal.

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• Has the ATO signed off on the wording of this Investment Strategy?

  The ATO is not in the habit of signing off the 1,000s of Investment Strategies that are prepared up, sometimes throughout the year, for every SMSF in Australia. However, many Investment Strategies just don't comply with law. This Investment Strategy structure allows you to carry out any legal strategy you want. The words are complying. Civic Legal who is a taxation and superannuation law firm prepared the words. You can see their web page at www.taxlawyers.com.au

  This hint is provided by Civic Legal.

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• How long is this Investment Strategy?

  Counting the heading page it is 3 pages long.

  This hint is provided by Civic Legal.

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• I have 20 Super Funds, can I just buy one?

  LawCentral is not a law firm. All documents at LawCentral belong to lawyers around Australia.
  
  You are paying money to purchase one Investment Strategy for only ONE Super Fund. That money includes the cost of the insurance taken out by the law firm. Sure, you could get your secretary to retype this Investment Strategy but then 2 things are at risk.
  
  Firstly, you lose the protection afforded by the lawyer's insurance.
  
  Secondly, if discovered the lawyer will publicly sue your business for the theft of the intellectual property to the fullest extent possible under the law. If you are a law firm, accounting house, financial planner or licensed under ASIC then you risk losing your licence because of the theft.
  
  Think about it. The whole reason of purchasing this Investment Strategy is to protect yourself and the SMSF.
  
  For a few dollars is it worth the risk? Just generate an Investment Strategy for each SMSF.
  
  Alternatively, if you are doing more than 20 of them contact us and we can broker a discount for a bulk purchase. That way you are properly and fully protected.

  This hint is provided by Civic Legal.

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Period

• Can I choose to cover more than one financial year?

  No.
  
  You can only use this Investment Strategy to cover a single financial year.
  
  If you need one for next year (or last year) you need to complete another form.

  This hint is provided by Civic Legal.

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This document has been prepared by: Civic Legal