SMSF industry calls for shake-up to wholesale investor definition

“Firstly, the thresholds and the way that is assessed has been frozen in time, and it’s not really reflective of where we sit today. Somebody could be a home owner and not really have a lot of other assets, and could be classed as a wholesale investor, but should they be betting the house and taking the risks that they’re taking?” she questioned.

From an SMSF perspective, Ms Scotchbrook said there are also various interpretations on how SMSFs fit into the asset test component.

“For our sector, we want to see greater clarity around how those rules apply to provide greater certainty. For accountants who are signing off on these certificates, what risk are they carrying given the divergent views that are out there?” she said.

Ms Scotchbrook noted that the SMSF Association is receiving a large number of inquiries from members around whether clients will meet the test and how it applies in the SMSF context.

“The worry is that with the complexity in the advice space, there may be a trend to classify certain clients as wholesale to alleviate the compliance complexity and burden,” she said.

She also noted the fact that wholesale or sophisticated investors are not required to be provided with statements of advice (SOAs) and financial services guides (FSGs) and a carve-out for these types of investors under the design and distribution obligations.

“The association would be very keen to see that have some really detailed review and reform,” she said.

Speaking in the same podcast, Chartered Accountants Australia and New Zealand (CA ANZ) financial advice leader Bronny Speed noted that the accounting body had also been receiving more and more calls and queries regarding wholesale investors due to the lack of clarity around the definition.

“They’re not coming in from those who are licensed accountants but those in the accounting profession who are being asked to sign off on these certificates all the time,” Ms Speed explained.

“I’m also not completely convinced that wholesale investors are necessarily more investment savvy either. The whole concept of a wholesale investor being investment savvy and therefore not having to have the same retail protections such as FSGs and SOAs and all these other things in place, I’m not sure that’s appropriate either. So there are quite a few issues within this area that need to be looked at.”

CPA Australia senior manager for advocacy and retirement policy Michael Davison stressed the importance of accountants using their professional judgement to determine whether the client would be considered a sophisticated or wholesale investor.

“If they don’t believe they are, then they need to refuse the engagement,” he said.

Mr Davison said, from a regulatory point of view, there needs to be more consideration around what the right balance of consumer protection is.

“You have wholesale or sophisticated investors but what level of protection should they be afforded? If we can get the answer to that question right around wholesale versus retail and what level of protection they need, we probably don’t need the delineation,” he explained.

“If we can work out the right level of consumer protection for the type of advice you’re providing, [we] can start getting rid of definitions like this.”

BT head of financial literacy and advocacy Bryan Ashenden said that the way advice is provided to wholesale investors is particularly complex in the context of SMSF advice.

“When you’re dealing with a complex range of issues, the issue becomes ‘well, which parts of the advice that I’m giving can I provide on a wholesale basis and which bits do I have to provide as retail advice?’ Generally, if I’m talking about making a contribution to super, I still have to provide that advice on a retail basis,” Mr Ashenden explained.

“I’ve got different interactions in different ways with the one client, depending on what I’m advising on, and that has to be confusing from the client’s perspective as well. So it’s not only about the definition, I think we’ve got to think about, well what does that really mean? If a client is a wholesale client, then they’re a wholesale client, and therefore why can’t all advice be provided to that client be provided through this methodology? [We also need to] work out what that correct mythology is.”