MYTH: The investment strategy must have asset allocation ranges.
TRUTH: There is no legal requirement to do this – asset allocation ranges are often just used as a convenient way to express a plan that involves investing in several different asset classes.
MYTH: A self managed fund can only have a single investment approach and it must be broad enough to cover the circumstances of each and every member.
TRUTH: Separate investment approaches could be formulated and effected for each member, or even each account balance, should the Trustee wish to do so. In effect, the Fund’s investment strategy could be a collection of several individual strategies.
MYTH: The investment strategy can’t have 0 – 100% for all asset classes.
TRUTH: There is nothing preventing this. The reason it is usually questioned by the ATO and auditors is that it suggests that there, is in fact, no plan. This is why we don’t recommend it except under very particular circumstances. However, providing the trustee is able to demonstrate that there is a plan but the trustee wishes to retain wide discretion over where the fund will invest at any given moment, the asset allocation ranges can be this broad.
MYTH: If the Fund invests outside its asset allocation ranges the trustee must put in place a new investment strategy document.
TRUTH: In fact the investment strategy could state that the asset allocation ranges are a guide and that the trustee may periodically stray outside those ranges if it considers doing so warranted by the circumstances at the time. Even if it doesn’t, there would be nothing to prevent the trustee from minuting the fact that the fund is currently outside the normal ranges but this is considered appropriate and does not represent a change to the long term plan.
MYTH: Each time the trustee acquires or disposes an asset, the investment strategy must be updated afterwards
TRUTH: The trustee must consider whether any asset acquisition or disposal is in accordance with the investment strategy before the transaction occurs. In fact, buying and selling assets will often be just part of implementing the stated strategy.
MYTH: The investment strategy must refer to the investment return the trustee expects to achieve over a certain timeframe. This may be expressed relative to, for example, inflation or wages growth. By way of illustration, the investment strategy may say ‘The Trustee expects to generate an average investment return of x% above inflation over rolling 3 year periods’.
TRUTH: There is no legal requirement to do this. The aim of the law is simply to ensure that the trustee has a plan and follows that plan. The law is not attempting to measure the trustee’s success (or otherwise) against the plan or even to drive the trustee to express the plan in a particular way. Benchmarks like this are often adopted because they are a convenient way of articulating what the trustee is attempting to achieve with its strategy.
MYTH: As long as there is a document on file, it doesn’t matter what it says and the Trustee can invest the fund’s assets in any way it chooses.
TRUTH: Remember that the requirement is to both have a plan and “give effect” to it. Hence it would be difficult to argue that the investment strategy document can be completely ignored in making the trustee’s investment decisions.
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David Nelson and The Money Matrix Advice Pty Ltd (ACN 603 049 083) trading as The Money Matrix (ABN 62 603 049 083) Authorised Representatives of Synchron AFS Licence No 243313. Unless specifically indicated, the information contained in this email is general in nature and does not take into account your personal situation. You should consider where the information is appropriate to your needs, and where appropriate, see personal advice from a financial adviser. Authorised Representative of Synchron AFS Licence No. 243313.