Key steps to managing your SMSF investment strategy

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As a trustee of an SMSF, one of your key areas of responsibility is to manage the SMSF’s investments. It’s essential to understand the key steps to managing your investment strategy and the importance of reviewing your strategy regularly.

Prepare an investment strategy

The Superannuation Industry (Supervision) Act, 1993, commonly referred to as the SIS Act, places certain duties and responsibilities on trustees when making investment decisions. These are designed to protect and increase member benefits.

You are required to prepare and implement an investment strategy for the SMSF, and regularly review it. The strategy must reflect the purpose and circumstances of the SMSF and consider:

  • Investing in such a way as to maximise member returns, taking into account the risk associated with the investment
  • Appropriate diversification and the benefits of investing across a number of asset classes (for example shares, property, fixed interest) in a long term investment strategy
  • The ability of the SMSF to pay benefits as members retire and pay other costs incurred by the SMSF
  • The needs of members (for example, age, years to retirement and the type of benefit to be paid)
  • Whether the trustees of the fund should hold insurance for one or more members of the fund.

The investment strategy outlines how the SMSF will aim to achieve its objectives and should include:

  • The asset classes the SMSF will invest in
  • The relative percentage weightings and benchmarks for each asset class.

The percentage weightings and benchmarks should take into consideration the risk profiles of the members as well as the SMSF’s overall objectives.

Separate investment strategies can be formulated for each member of the SMSF. This can assist the trustee to deal with situations where different members of the SMSF have different risk profiles (e.g. someone who has just started working may have a higher growth asset allocation whilst someone near retirement age may be more conservative).

Review regularly

The investment strategy should be reviewed on a regular basis for several important reasons. These include:

  • Whenever the membership of the SMSF changes or whenever the personal circumstances of a member change
  • The death or departure of an existing member
  • The addition of a new member
  • The retirement of a member.

These reviews are in addition to the regular review of the investments held, which should be undertaken at least annually.

Failure to comply with investment rules carries significant penalties. These penalties can range from the freezing of SMSF assets through to trustee fines, disqualification, prosecution and criminal conviction.

Insurance via superannuation

Death, Total and Permanent Disablement (TPD) and Salary Continuance policies can be purchased by an SMSF. The premiums for these policies are generally tax deductible (in full or part) to the SMSF as long as the Fund is a complying superannuation fund.

Since 1 July 2014, it has not been possible to take out a new Trauma policy or a new TPD policy for own occupation within any superannuation funds including SMSFs.

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The information in this document has been prepared by Westpac Banking Corporation ABN 33 007 457 141 AFSL and Australian credit licence 233714. The information is general in nature and does not take into account your personal needs, objectives or circumstances and therefore, before acting on this information, you should consider whether it is appropriate for you.

BT Portfolio Services Ltd ABN 73 095 055 208 AFSL 233715 (BTPS) operates BT Panorama Investments (the investor directed portfolio service operated by BTPS). BT Funds Management Limited ABN 63 002 916 458 AFSL 233724 (BTFM) is the responsible entity and issuer of interests in BT Cash and Westpac Financial Services Ltd ABN 20 000 241 127 AFSL 233716 is the responsible entity and issuer of interests in BT Managed Portfolios. An Investor Guide is available for BT Panorama Investments and a PDS is available for BT Cash and BT Managed Portfolios (the Panorama products). These disclosure documents can be obtained from BTPS by visiting www.bt.com.au/smsf or calling 1300 881 716. A person should obtain and consider the disclosure documents before deciding whether to acquire, continue to hold or dispose of interests in the Panorama products.

In addition, BTPS is the provider of the Panorama SMSF Establishment Service and the Panorama SMSF Administration Service. The Guide and Terms and Conditions for these services are available by visiting www.bt.com.au/smsf or calling 1300 881 716

BTPS, BTFM and WFSL are subsidiaries of Westpac Banking Corporation ABN 33 007 457 141 (Westpac). Apart from any interest investors may have in Westpac term deposits or securities acquired through Panorama, an investment in or acquired through Panorama is not an investment in a bank or a bank deposit. Westpac and its related entities do not guarantee an investment in or acquired through Panorama Investments.

© Westpac Banking Corporation 2016