Financial Newsletter Sunshine Coast
Welcome to Unique Financial Partnerships, keeping you up to date with all financial planning, self managed superannuation funds, tax minimisation, life insurance, on the Sunshine Coast and around Australia.
The information in this newsletter is current at the time of printing. Contact us for updates.
Regular reviews of investment strategies
Superannuation fund trustees are now required to regularly review the fund’s investment
strategy. SIS regulations have always required trustees to formulate and give effect to an
investment strategy but they must now formally review their strategy on a regular basis.
The change is designed to ensure that trustees do not simply set and forget their investment
goals. They need to be reviewed regularly to ensure that they remain relevant and appropriate
as circumstances change. Events that should prompt SMSF trustees to consider an additional
review of their investment strategy may include the admittance of a new member, changes in a
member’s personal circumstance (marriage, children), commencing a pension or significant
changes in market conditions.
The requirement to regularly review applies to all superannuation funds, not just SMSFs.
The regulations require that the investment strategy considers:
- risk and return
- ability to meet liabilities
- insurance for members (new for SMSFs only - see the insurance section below).
How we can help
Futuro Advisors can help trustees by building a review of the SMSF’s investment strategy into
your annual review and ensuring that the investment strategy review is documented. It is also
important to ensure that the investment strategy is appropriate for all members of the fund. For
example, if two SMSF members have significantly different risk profiles, it would be necessary
to ensure that this is reflected in the fund’s investment strategy. This may involve establishing
and maintaining different investment strategies for each member. Trustees should ensure that a
review of their SMSF investment strategy occurs by 1 July 2013.
When formulating the fund’s investment strategy, SMSF trustees are required to consider
whether they should hold insurance policies for the members. There is no requirement that the
fund obtains insurance cover, however the need (or otherwise) must be actively considered.
Insurance can include life, total and permanent disablement (TPD), income protection and
trauma insurance. In conducting the review, it is worth remembering that the Government has
previously announced its intention to ban superannuation funds from holding insurance policies
that do not meet a superannuation condition of release. This is likely to limit the ability to hold
‘own occupation’ TPD policies and trauma policies within super in the future.
The requirement to consider insurance as part of the fund’s investment strategy does not apply
to trustees of small APRA funds (SAFs) or to other APRA regulated funds.
How we can help
Futuro advisors can help clients by ensuring that trustees are aware of their obligations and by
working with them to assess their insurance needs. This can include assessing the benefits of
holding various types of insurance within the SMSF versus outside of super. A review of
personal insurance may provide a timely prompt to ensure that other insurances are in order,
including public liability insurance and insurance for property, collectables and other insurable
Separation of assets
The regulations introduce an operating standard which requires the trustee of an SMSF to keep
the assets of the fund separate from any assets that are held by trustees or standard employer
sponsors and their associates.
The requirement to separate assets has always been (and continues to be) a covenant in the
SIS Act. The covenant is taken to be incorporated in the trust deed of a fund, however,
breaches of the covenant only result in penalties if the SMSF members take action against the
trustees for breach of trust. Given the mutuality between the SMSF members and the trustees,
this is unlikely.
Despite the longstanding existing requirement to keep assets separate, breaches consistently
represent over 25 per cent of the value of all audit contravention reports 3. The introduction of
the requirement as an operating standard in the SIS regulations means that it is now easy for
the ATO to apply penalties for intentional or reckless contraventions of this breach.
The changes require that all assets must be valued at market value for the 2012/13 year of
income, and all subsequent years. Market value must be used when preparing the fund’s
accounts and member statements.
Market value is defined in the SIS Act4 as the amount that a willing buyer of the asset could
reasonably be expected to pay to acquire the asset from a willing seller if the following
assumptions were made:
- The buyer and the seller dealt with each other at arm’s length in relation to the sale.
- The sale occurred after proper marketing of the asset.
- The buyer and the seller acted knowledgeably and prudentially in relation to the sale.
Previously, assets were only required to be valued at market value if the fund had in-house
assets and when a pension was commenced. If clients have assets that require valuations, they
should prepare for this in plenty of time to complete 2012/13 year end work.
Breaches of this regulatory requirement also carry penalties of up to 100 penalty units.
However, this is also a strict liability offence and penalties of up to 50 penalty units can be
applied simply because the breach has occurred, there is no requirement for the breach to have
been intentional or reckless.
We can help you to ensure that you and your accountants and/or administrators are prepared
for this change.
- Superannuation Industry Supervision Regulation 1994
- ATO publication – SMSFs – a statistical overview 2009-10
- ATO publication – SMSFs – a statistical overview 2009-10
- Superannuation Industry Supervision Act 1993
Disclaimer: This document was prepared by Futuro Financial Services Pty Ltd ABN 30 085 015 (AFSL number 238478) without taking into account any person’s particular objectives, financial situation or needs. It is not guaranteed as accurate or complete and should not be relied upon as such. Futuro Financial Services Pty Ltd does not accept any responsibility for the opinions, comments and analysis contained in this document, all of which are intended to be of a general nature. Accordingly, reliance should not be placed by anyone on this document as the basis for making any investment, financial or other decision. Investors should, before acting on this information, consider the appropriateness of this information having regard to their personal objectives, financial situation or needs. We recommend investors obtain financial advice specific to their situation before many any financial investment or insurance decision.
All representations and information contained in Futuro in Focus are made in good faith and are believed to be correct at the time of preparation. Articles are of a general nature and they do not purport to be specific investment advice. Individual needs or other considerations have not been taken into account, thus information contained herein should not be relied upon as a substitute for detailed advice. Futuro Financial Services will receive fees or brokerage from the provision of advice or placement of investments. You may, by contacting our Privacy Officer on 07 3018 0400 or by writing to Futuro Financial Services Privacy Officer GPO Box 942 Brisbane QLD 4001, request not to receive further editions of Futuro in Focus.