Like Rick Stein with a notepad on a Mediterranean odyssey, the ATO is now seeking to find out the secret ingredients of your client’s investment strategy.

In recent weeks the ATO has outlined a new approach to investment strategies, conducting a mail out this week to 17,000 at risk SMSF’s.

Already, we have been contacted by Trustee’s and their advisors upon receipt of this letter.

Interestingly, the vast majority receiving letters we have reviewed are SMSF’s with a single property investment.   Any agenda here? 

What is the issue?

The SIS Act places certain obligations on Trustees’.  Both section 52 and Regulation 4.09  outline the “things” trustees need to consider and document prior to investing members monies.

This is the case even if Trustees are practically investing their own super inside an SMSF. 

The SIS Act requires a Trustee to act with the same duty of care as if they were investing on behalf of a non-related party.

In recent times the ATO has become concerned SMSF Trustees are not considering these obligations.   

Diversification… diversification… diversification..

Ok, we get it!   The ATO has sent letters to those SMSF’s with  90% of investments in one asset or a single asset class.  

The letter reminds Trustees that they need to have evidence in their investment strategy of having considered diversification of the fund’s investments and the risks involved with inadequate diversification.

It also advises the trustee to have their investment strategy containing evidence of these considerations, ready to provide to their auditor as part of their next audit.

And I have also just received an email from the ATO letting us auditors know they have written to Trustees and reminding us of our need to seek evidence of compliance with the above regulations.

So what does this all mean?

I think it is clear that the ATO will no longer accept a one-pot wonder strategy.  

More likely, trustees will need to serve up a bespoke, deconstructed document, care taken with every element.

Accountants will be placing themselves at risk if they place a “tick the box” strategy in front of the client at a year end meeting.

The ATO is clearly now placing more expectations on Trustees to step up and embrace their statutory duties.  

Did you get a letter?

Don’t panic…

However, for those specific clients, there is certainly a need to review, address and update if there are deficiencies in the current strategy. 

Remember that the ATO is essentially now looking for “working papers”  to back up and support the headline strategy document.    For some clients, this may practically need to be completed in conjunction with a financial planner with the “working papers” being a statement of advice document.            

Ongoing, accountants need to be planning to apply this review to all their SMSF clients.

Understandably, this will add time, cost and client frustration and will be a factor in weighing up the benefits of having an SMSF.  There is also a chance, however, that having better informed and involved Trustees will lead to better financial outcomes for both the client and the accountant.

I am sure you will be receiving lots of calls in the next few weeks.  As always we are here to help. 

Need Help?

If you have concerns about your client’s investment strategy, give TriSuper Auditors a call on 1300 TRISUP.

Contact TriSuper Auditors on 1300 TRISUP or visit our website for further information.