What do you and Michael Phelps have in common?
Last month, we watched over 10,000 athletes realise their goal of competing at an Olympic Games. Reaching the pinnacle of their sport took years of preparation, commitment and sacrifice. Successful athletes like Michael Phelps and Usain Bolt didn’t just wake up one day and decide to compete at the Olympics the next. It required a meticulously crafted training plan which was continually revised to ensure their progress remained on track with their goal always front of mind.
Similar focus is required of trustees of self-managed superannuation funds (SMSFs) in order to reach their goal – stated simply, to provide retirement benefits to SMSF members. They must define a strategy, implement it, and then review it regularly, making changes as necessary.
This strategy, known as an investment strategy, is designed to minimise the risk that members’ benefits will be eroded due to careless or misguided actions by the trustees. If the trustees don’t know what the SMSF is aiming to achieve, or how the fund will get there, this risk is real. Developing and implementing an investment strategy is a legislative requirement and failure to do so may cause the fund to become non-complying. It can also result fines of up to $18,000 for the trustees, and an administrative penalty of $3,600 for the fund.
What to consider when setting your investment strategy
An athlete’s training plan is tailored to suit their individual skills, strengths and goal. It considers several factors including training methods, nutrition, psychological needs, and timeframes. Similarly, each SMSF must have a unique investment strategy to document the fund’s objectives and desired investments, with specific regard to:
- the whole of the fund’s circumstances (e.g. age and work status of members, accumulation vs pension balances)
- the risks associated with investments and the likely returns
- diversification of investments
- liquidity of investments and the fund’s cash flow requirements
- the fund’s ability to pay current and future liabilities, and
- each member’s need for insurance cover
How to know if it’s time to change your investment strategy
Physical injuries, emotional stress and weather conditions affect an athlete’s performance. They warrant a revision of the training plan. Changes in the circumstances of the SMSF warrant a revision of its investment strategy. Some factors that may warrant a review of your fund’s investment strategy include the commencement of a pension, investment in a new asset class, or the admission of a member. To comply with the law, trustees must regularly review their strategy and document their decision to either proceed as planned or make amendments.
How and when to get help
Coaches help athletes devise the best training plan to suit their needs. If trustees need help in preparing, implementing or reviewing their investment strategy, they should seek specific advice from a qualified professional. Failing to plan is planning to fail, and our team can help you ensure your SMSF is legally compliant, and on the right path to achieving your goal.
This article is factual in nature and does not consider your personal objectives, situation or needs. The information is objectively ascertainable and therefore does not constitute financial product advice. If you require personal advice, you should consult an appropriately licensed or authorised financial adviser.
For more information please contact your usual Grant Thornton advisor, or:
Dennis Eagles
National Head of Self Managed Super
E dennis.eagles@au.gt.com
T +61 7 3222 0242
Stephen Kuchar
Partner - Private Advisory
E stephen.kuchar@au.gt.com
T +61 8 8372 6550
Sharon Gdanski
Associate Director - Private Advisory
E sharon.gdanski@au.gt.com
T +61 3 8320 2230
Simon Gow
Senior Manager - Private Advisory
E simon.gow@au.gt.com
T +61 8 9480 2059
Minny Talasch
Manager - Private Advisory
E minny.talasch@au.gt.com
T +61 2 8297 2639
Deanne Quinn
Manager - Private Advisory
E deanne.quinn@au.gt.com
T +61 7 4046 8812
