The regulators are dominating talk in the SMSF sector at the moment, as both the ATO and ASIC make their views – and concerns – abundantly clear for investors managing their own superannuation.
Although the below messages from the regulators have been in circulation for several weeks, they continue to attract attention, debate and questions from the SMSF sector – both professionals and investors alike.
The ATO’s concerns about investment strategy
The ATO recently sent a letter to almost 18,000 SMSF trustees, who had 90 per cent or more of their total investments in one single asset class.
This continues to create waves in the SMSF sector, both among the investor and professional population, for two reasons.
First, although only about three per cent of the total trustee population received a letter from the ATO, the volume of notifications distributed has captured attention.
Second, there have been some questions about why the ATO is commenting on investments, given it is not a prudential regulator.
Peter Burgess – general manager, technical services and education, at SuperConcepts – explained that the ATO exists to ensure SMSFs comply with the rules that govern them, and one of those rules is that the fund has an investment strategy which has been properly formulated.
As Graeme Colley – SuperConcepts executive manager, SMSF technical and private wealth – also previously explained, the requirement to have an investment strategy does not mean SMSF trustees must have a diversified portfolio across all asset types. However, trustees must have clear and valid reasons for the investment strategy they have decided on.
Trustees should, therefore ensure they have a properly formulated investment strategy, and understand that it will be a key consideration during the annual audit process.
“There’s a real focus at the moment on making sure you have a properly formulated investment strategy,” Mr Burgess said.
“Auditors will no doubt be focusing on this, and wanting to make sure that trustees have given necessary and due consideration to their investment strategy,” Mr Burgess said, noting that auditors of the funds also received notification of the ATO’s concerns.
Options moving forward for trustees who are in the red zone include reformulating their investment strategy where diversification has not been effectively considered, or editing their currently investment strategy to appropriately consider their asset mix.
ASIC’s cost warnings for SMSFs
In early October, the corporate regulator issued a media release, urging Australians to thoroughly consider whether an SMSF is right for their circumstances.1
By and large, key stakeholders and industry bodies support a prudent and considered approach to deciding on SMSF establishment.
However, parts of the sector continue to take issue with ASIC highlighting the results of a Productivity Commission report, which indicate that SMSFs with balances below $500,000 produce lower returns on average.
Key voices have also taken issue with ASIC noting significant time and cost considerations with running an SMSF.
For Mr Burgess, the key take-aways from ASIC’s statement and the resulting commentary is this: the time and cost of an SMSF should always be meticulously considered, but this notice shouldn’t serve as a deterrent to those who are willing and able to invest time and resources into running fund.
“If you’re spending lots of time with your investments, is that always a bad thing? Being engaged with your investment decisions is important, and often why people get involved with SMSFs in the first place,” Mr Burgess said.
“The underlying message is that an SMSF is not suitable for everyone, and we agree as does the SMSF sector. But used in the right circumstances, they can be very valuable,” Mr Burgess said.
Subscribe to SMSF News to receive my latest articlesKatarina Taurian, Content Editor and Senior Writer
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