Compliant SMSF Investment Strategy

Establishing an investment strategy is a fundamental requirement for every Self-Managed Super Fund (SMSF) in Australia, mandated under the Superannuation Industry (Supervision) Act 1993 (SIS Act).

Trustees are legally obligated to formulate and maintain an investment strategy that outlines how the fund’s assets will be invested to achieve each member’s retirement objectives. A well-prepared investment strategy demonstrates compliance with ATO regulations and provides a clear decision-making framework for the fund.

What the ATO Requires of SMSF Investment Strategies

ATO requirements make it mandatory for trustees to regularly review, document, and update their SMSF investment strategy. The strategy must align with the fund’s trust deed, the sole purpose test, and all relevant superannuation laws.

Trustees should record all investment strategy reviews and keep written evidence for auditors and in case of ATO requests. A “set and forget” approach is not permitted; every strategy must be reviewed at least annually or whenever members’ circumstances or market conditions change.

Diversification and Risk

The ATO requires trustees to consider asset diversification as part of their investment strategy. This means holding different asset classes, such as property, shares, fixed interest, and cash to manage risk and ensure the fund can meet retirement goals, including cash flow for benefit payments.

Trustees must assess the risks of inadequate diversification and their potential impact on returns, and be able to demonstrate this to auditors and the ATO if requested. Strategies must explain why and how investments, whether diversified or concentrated are suitable for the fund’s circumstances.

Alignment With Retirement Objectives

Every investment decision should reflect the fund’s retirement objectives, members’ plans, and expected returns. Trustees must consider the timing and sufficiency of benefit payments, ensuring the fund maintains liquidity for both accumulation and pension phases, so that benefits can be paid as they fall due.

Insurance Considerations

SMSF strategies must address insurance arrangements for members, including life insurance, total and permanent disability (TPD), and income protection. Trustees should evaluate the insurance needs for each member and incorporate recommendations into the documented strategy to safeguard retirement savings.

Documentation

Proper documentation is essential to demonstrate that the SMSF investment strategy is compliant. Trustees should record the strategy and all reviews in the fund’s minutes, ensuring it remains tailored and up to date. Any changes, whether prompted by market scenarios, legislative updates, or member circumstances—must also be formally documented. In case of ATO correspondence about diversification or compliance, trustees need written records as evidence for auditors.

Review and Update Regularly

Investment strategies are not static documents. ATO expects these to be reviewed at least annually or any time fund circumstances change—a new member joins, assets are acquired or disposed, retirement objectives shift, or the market changes significantly. Regular reviews are critical to show that trustees are managing the fund actively, prudently, and in accordance with legal obligations.

Ensuring Compliance

Licensed mortgage brokers and advisers must ensure that any SMSF lending, such as limited recourse borrowing arrangements (LRBA), are consistent with the written investment strategy, trust deed, and SIS Act requirements. Brokers should advise on risks, diversification, asset limitations, and cash flow requirements with full documentation and evidence for audit purposes.

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DISCLAIMER: This article is provided for general information only. While care has been taken, no guarantee is given as to the accuracy, completeness, or timeliness of the content. It does not constitute financial, accounting, legal, or SMSF advice and does not consider your personal circumstances. You should seek independent, licensed professional advice before making decisions about SMSFs, compliance, or investments. #SMSFInvestmentStrategy #SMSFCompliance #SelfManagedSuper #SuperannuationLaw