11 August 2023

Self-managed superannuation funds (SMSFs) can be a highly effective wealth creation and management tool offering investment flexibility, tax efficiency, and reduced costs. But SMSFs are not a set and forget financial tool.

During periods of economic uncertainty in particular, ongoing SMSF reviews are a critical part of ensuring SMSF strategies stay on track to meet your retirement objectives. Strategic planning helps you adapt to not only changing market conditions but also your unique, changing needs.

5 triggers that should prompt trustees to review their SMSF strategies

The current economic slowdown in Australia has prompted many clients to look at their investments and future options – and with good reason. However, there are other triggers that should also remind trustees to review their SMSF strategies to ensure they are compliant and adapting to their changing needs as well as the market’s.

1. Change in personal or family circumstances
   The impact of sudden life circumstances along the way can have a significant effect on SMSF strategies. Life events such as marriage, divorce, birth of a child, or retirement planning can shift your financial priorities and risk appetite so reviewing your self-managed super strategy in light of changing circumstances allows you to make necessary adjustments to align your SMSF with your evolving financial objectives.
   
   For instance, experiencing a significant life event such as a job loss or health-related issues may lead to a decrease in risk tolerance as individuals become more risk-averse. Conversely, a positive change, such as a career advancement, may increase risk tolerance as individuals have more disposable income to invest.
   
   Additionally, changes in personal or family circumstances may require a review of fund strategies and structures. For example, in the case of divorce or death of a spouse, the SMSF's trustee may need to consider re-evaluating the fund's structure or including a new trustee. In situations where a trustee becomes incapacitated or unable to manage the fund due to health issues, alternative arrangements may need to be put in place, such as appointing a power of attorney or considering a transition to a different superannuation structure.
   
   Regularly reviewing your self-managed super fund enables you to evaluate your risk tolerance and adjust the asset allocation and SMSF investment strategy accordingly to ensure that your fund’s risk profile aligns with your comfort level and avoids undue exposure to excessive risk or missed opportunities for growth.

2. Changes to SMSF rules and regulations
   
   SMSF regulations are dynamic and changes to SMSF rules and regulations can have a significant impact on the operation, compliance, and overall effectiveness of your investments.
   
   One of the primary impacts of changes to self-managed superannuation fund rules and regulations is the need for compliance. Reviewing SMSF strategies regularly allows you to stay informed about the latest rules and regulations, assess your SMSF's compliance, and take appropriate actions to ensure adherence. This may involve updating governing documents, adjusting SMSF investment strategies, or implementing new reporting and administrative procedures to align with the revised requirements.
   
   Changes to SMSF rules and regulations can also affect the investment choices available to you. For example, changes to contribution caps, borrowing restrictions, or the introduction of new investment classes can influence asset allocation and diversification strategies. By reviewing your self-managed super strategy, you’ll be able to evaluate the impact of these changes on your investment strategy, consider new investment options, and make adjustments to optimise your fund's performance.
   
   Furthermore, changes to SMSF rules and regulations can affect the taxation implications and benefits associated with SMSFs. Amendments to taxation laws, superannuation contribution caps, or pension rules can alter the tax treatment of SMSF contributions, investment income, or benefit payments. To help minimise tax liabilities and maximise the benefits available to you, it’s crucial to understand the impact of any changes on your SMSF's tax position and seek appropriate advice from an SMSF accountant to help optimise your fund's tax efficiency within the updated regulatory framework.

3. Unsatisfactory investment performance
   
   Your super is a significant portion of your wealth so ensuring your investments are performing in line to meet your financial objectives and retirement outcomes is imperative. 
   
   Poor investment performance can lead to diminished returns, capital losses, or lower than expected growth of your fund, which can jeopardise the achievement of your retirement goals and negatively affect your financial security. Reviewing your SMSF investment strategy regularly allows you to assess the performance of your investments, compare them against benchmarks and market conditions, and take appropriate actions to address any underperformance.
   
   As part of this process, it’s critical to pinpoint the cause of the unsatisfactory investment performance. Is your fund underperforming because of its asset allocation and diversification strategy? By reviewing your strategy, you’ll be able to identify areas of weakness, reassess the suitability of your current asset allocation, and consider rebalancing or reallocating investments to achieve a better risk-return profile. It’s also a great opportunity to explore new investment opportunities or asset classes that may offer greater potential for growth or stability, thereby enhancing the overall performance of your SMSF.
   
   Additionally, unsatisfactory investment performance could mean it’s time to review the professionals involved with the management of your SMSF. Are the investment managers, fund managers, or financial advisers responsible for managing your SMSF's investments underperforming? A good accountant or financial planner will make a regular review of your SMSF part of their ongoing service to you to help ensure your fund is on track to meet its investment objectives and make adjustments as and when necessary.

4. No review undertaken in the past three years
   
   According to the ATO, SMSF strategies should be reviewed at least once every year with the decisions documented. Any longer between reviews and you leave yourself exposed to missed opportunities, increased risk exposure, non-compliance and underperformance.
   
   The financial landscape is constantly evolving, and market conditions, as well as your own personal circumstances, can change significantly within a three-year timeframe. Failing to review and update SMSF strategies may mean that they no longer align with your financial goals or risk tolerance, which can leave you exposed to undue risk or miss out on potential growth opportunities.
   
   It also increases your risk of non-compliance with the latest rules and regulations, which can result in penalties, loss of tax concessions, or even disqualification of the SMSF. Failing to review your SMSF at least annually, also hinders your ability to gauge your SMSF's financial health, identify areas of improvement, or address underperformance.

5. Uncertain or deteriorating market conditions
   
   Economic uncertainty and downturns create new risks in the market, but they also create new opportunities. With the investment flexibility that SMSFs provide, regularly reviewing your SMSF investment strategy can help position you to take advantage of those changes in the market so you’re better able to mitigate risks and leap on opportunities when they arise.
   
   One of the most apparent impacts of uncertain or deteriorating market conditions on SMSFs is the change in investment risk and returns. These conditions can lead to heightened market volatility, which can affect the performance of various asset classes held within the fund. For example, during economic downturns or market downturns, share prices may decline, property values may drop, and interest rates may fluctuate. For DIY investors in particular, this can lead to panic selling, potentially harming the long-term performance of their fund by crystallizing losses and missing out on potential future gains.
   
   Additionally, deteriorating market conditions are a good time to evaluate the effectiveness of your existing risk management strategies and consider new risk mitigation and hedging strategies such as diversifying your portfolio across different asset classes and geographic regions or exploring alternative investment options, such as bonds, commodities, or even hedging instruments.
   
   Reviewing SMSF strategies during uncertain or deteriorating market conditions allows you to assess the impact of the conditions on your investment portfolio and make informed decisions on what adjustments are needed to safeguard it.

Ready to book your SMSF strategy review meeting?

Reviewing your SMSF regularly means you’ll be better prepared to grab opportunities and mitigate risks and ultimately, improve financial outcomes. In summary, regular reviews can help you:

• Ensure investment performance meets retirement goals.

• Take advantage of changes in SMSF rules and regulations such as contribution limits.

• Adapt to changing personal circumstances.

• Monitor your SMSF performance and adjust to ensure you're on the track with your goals.

• Understand your individual needs and tailor an SMSF strategy to suit your risk tolerance and investment preferences.

If you’d like to review your SMSF investment strategy and goals, book an SMSF strategy meeting with one of our SMSF Administration and Advisory team today. 

The views and opinions expressed in this article are those of the author/s and do not necessarily reflect the thought or position of Findex Group Limited.

This article contains general information and is not intended to constitute legal or taxation advice. If you need legal or taxation advice, we recommend you speak to a qualified adviser.