SMSF Auditor Being Pedantic on Investment Strategies? Why this might be a good thing – Part III

In the first two articles, we considered risk to the trustees of others accessing the account and how the trustees formulating and giving effect to the strategy reduces this risk. We also considered why “considering a decision” isn’t the same as actually making and implementing it.

Now, we will consider why this strict ATO interpretation further helps the trustees. All accountants have that client (or a few of them). The one who trades shares like crazy. Then loses large amounts of money in realised capital losses when they do it. Or the one who trades options, writes CFDs or puts almost 100% of their fund into crypto, only to suffer huge realised losses. No one goes out of their way to lose large amounts of money. But often, this is the by produce of a non-articulated strategy. That is, the trustee thinks “I’ve heard a great tip on this share”, or “Dogecoin has gone up 10000%”, and rather than refer to their own decision making process, let emotion, hype and FOMO be what informs their decision. This is what the ATO hopes to prevent. Because they know that the superannuation environment is primarily for retirement, not for the investment based equivalent of visiting the TAB, or panic buying toilet paper.

The third reason is when we look at insurance, members below 55 years of age will likely have large liabilities personally, and their industry fund’s group insurance policies are a ‘set and forget’ solution to any TPD/Death benefit event. It allows their surviving dependents (and the liabilities they inherit) to be taken care of. Too often, have I seen a fund set up, where members clearly needs life insurance and have, as a result of not genuinely considering an investment strategy, have not actually obtained it. I cannot advise them regarding their insurance needs, nor can their accountant, but by bringing to their attention to this issue, it allows them be aware to implement decisions that ultimately benefit them, without offering advice. Add in (per Article 2), the access of others to the fund, we have risks to the retirement lifestyle for the members, we have considered 3 different reasons why the auditor is helping the client, rather than being out to annoy them. If we can alter all of our perspectives on this issue and the ATO’s interpretation, then ultimately, our clients are the ones who benefit. I know there are other reasons bringing this to the trustees’ attention is a positive thing. Please leave a comment for why you think the ATO are actually helping trustees/members.