The SMSF Investment Strategy

Superannuation & SMSF StrategySMSFs are required under the SIS Operating Standards (SIS Regulation 4.09, under SIS Act 31(1)) to ‘formulate, review regularly and give effect’ an Investment Strategy. Under s34 of the SIS Act contravening the Operating Standards can result in a fine of 100 penalty units, currently $ 17,000.

Under the Regulations the Investment Strategy must consider at least the following (para-phrased):

  • Risk and Return
  • Diversification
  • Liquidity and Solvency
  • Insurance cover for members

The requirement to consider insurance was added following a recommendation as part of the Super System Review. The Operating Standard does not require that the SMSF hold insurance for members, but that the strategy considers whether the fund should hold such policies. The Review considered that, though only 12.7% of funds (based on ATO data) held insurance policies for members, it was likely that SMSF members held insurance separate from their SMSF.

There is limited indication in the regulations, the explanatory memorandum or from the ATO what would be meant by ‘regularly’. The Explanatory Memorandum to the Superannuation Industry (Supervision) Amendment Regulation 2012 (No. 2) do say that Trustees could document the requirement to consider insurance and review the investment strategy regularly in the investment strategy or minutes of meeting.

 

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