Being a trustee of a self-managed superannuation fund (SMSF) is a major responsibility and the decisions made by you as trustee will affect the retirement incomes of all members of the fund, yourself included. Since this end result may not take place for many years, getting the right investment strategy, at not only the start but right throughout the entire journey until retirement, is critical to the lifestyle you will enjoy at that juncture.
As the superannuation environment becomes more and more complex, having sound, reliable, consistent advice from a trusted financial advisor is essential, especially if you are concerned that your knowledge of the investment world is limited. You must have a written investment plan and the best way to start one is to establish financial objectives, then tailor your plan to achieve them.
If you are a trustee, it falls to you to decide what would better suit your stated objectives. Putting all of this in writing allows you and your financial advisor to examine, research, discuss and formulate a response to the investment products available at the time.
Currently, there is a disparity between the types of investments favoured by APRA-regulated funds and SMSFs, with SMSFs showing a clear preference for Australian shares, property and cash. From the information provided by the Australian Taxation Office, it seems that Australian shares are the first preference; cash comes second and property is third.
Within those three areas are variations such as listed property trusts, options, futures and others in the Australian shares strategy, bonds, debentures, fixed term and term deposits and others in the cash strategy and residential and commercial property in the property strategy.
However, identifying the preferred strategies for your fund is not the whole story. When you compile your Investment Strategy document, you must also consider the risk, cost of holding and likely return of these investments when considered against the SMSF objectives and future cash flow requirements. You must also look at all the investments as a whole and assess the likelihood of the entity being exposed to excessive risks and the benefits of diversification to prevent this.
You must also consider the liquidity of the investments to allow for the payment of tax, lump sum payments if a member leaves the SMSF and regular pension payments. The SMSF must also be able to discharge its existing and prospective liabilities.
This is a lot to manage and be responsible for and having a licensed financial advisor to assist the trustee with the many decisions that will be needed over the life of the fund will make the task much less onerous.
The administration of the fund is another area that can quickly become a burden if returns are not made on time or any of the other mandatory requirements are not met. Companies such as SMSF Assure are readily available to assist with this part of the management of your SMSF, leaving you and your financial advisor to work together to implement the investment strategy.