Investment diversification requirements for SMSFs strategies

 

The ATO has recently announced that it will be sending out letters to approximately 17,700 self-managed super fund (SMSF) trustees and their auditors, where the ATO has concerns that the SMSF investment strategies may not meet the diversification requirements under regulation 4.09 of the Superannuation Industry (Supervision) Act (SISA). The criteria that the ATO has set to target these SMSFs, is based on those that could hold 90% or more of funds in one asset, or a single asset class.

Be prepared to discuss these concerns with your SMSF clients that may be contacted by the ATO.  You will need to ensure that their current investment strategy follows the current requirements under SISA and have their investment strategy ready to show to their SMSF auditor during their next audit. Your trustee clients must be able to provide their SMSF auditor with evidence of how they consider their investment strategy meets the following requirements:

  • The diversification of fund investments
  • The risks of inadequate diversification within the context of their SMSF investment portfolio (for example, the risks associated with the fund's investments in a diversified portfolio of shares is likely to be lower than that of another asset class, such as cryptocurrency)
  • The making, holding, realising, and the likely return from their fund investments relating to their retirement objectives and expected cash flow requirements.
  • The liquidity of their investments, allowing the fund to meet costs and pay benefits as members retire
  • Whether insurance cover should be held for one or more members.

We recommend that you ensure your clients' most up to date SMSF investment strategies are on file with the fund auditor and the fund auditor is satisfied. The ATO will warn trustees that penalties may apply if their auditor advises they have failed to rectify non-compliance with these requirements.

Regardless of whether your SMSF clients will receive a letter, now is a timely opportunity to discuss these important considerations under regulation 4.09 of SISA.

If your trustee clients need help in reviewing an updating their investment strategy, they should consider seeking assistance from a licensed SMSF advisor. Please contact your Partners Wealth Group advisor directly or call us on 1800 333 143.