25 Jan 2024
This article examines investment strategies from an audit perspective, focusing on the obligations set forth by the Superannuation Industry (Supervision) Act (SIS Act) for members of Self Managed Super Fund (SMSF) super funds. Compliance with the law mandates the adoption, implementation, and regular review of an investment strategy by fund members. Although the legislation does not prescribe specific investments, certain constraints exist.
It is imperative to craft an investment strategy that not only complies with the legal prerequisites but is also uniquely tailored to retirement objectives and the specific circumstances of the fund. The minimum requirements dictated by the law necessitate that the investment strategy addresses key considerations:
Evaluation of risks associated with investments and their alignment with retirement objectives.
Assessment of the impact of investments on the fund's cash flow requirements, with a plan to manage cash flow risks. Additionally, the ease of converting investments to cash for operating expenses, including income tax, should be considered.
Examination of the composition of the fund's assets to ensure adequate diversification and risk mitigation.
Alignment of investments with retirement goals, including provisions for lump sums or income streams while sustaining the fund's operational costs.
Determination of members' preferences regarding insurance coverage within or outside the super fund.
The investment strategy must be reviewed regularly
Trustees sometimes present wide-ranging investment strategies, such as a spectrum from 0 to 100% for each investment class. In such instances, it is incumbent upon the trustees to articulate the rationale behind this approach and explain how it serves the overarching retirement objectives.
Auditors are required to verify the fund’s adherence to investment strategy requirements stipulated by super the law. Non-compliance can result in a submission of an auditor’s contravention report to the ATO.
Disclaimer: Please note that this article is intended for informational purposes only and does not constitute financial or legal advice.