Speaking at the SMSFA National Conference, Tracey Scotchbrook, SMSFA head of policy and advocacy, said Australian Financial Complaints Authority determinations had created “significant uncertainty” across the industry – especially for advisers and product providers.
“While the 2001 legislation that defined the wholesale investor test was poorly designed there was a broad industry consensus that a $2.5 million asset test and an investment of $500,000 in a financial product, set the wholesale parameters for investments acquired by SMSF trustees,” Scotchbrook said.
“But the recent AFCA determinations have cast a black cloud over this consensus, creating a situation where a $10 million asset test could be the new benchmark for a consumer to claim wholesale status. This now opens the door for potential compensation via AFCA – for a poor investment decision.”
She continued that in the current regulatory environment, there will be genuine risks for advisers with SMSFs who have been classified as wholesale under the $2.5 million asset test but are now potentially vulnerable to a $10 million threshold.
“It just won’t be advisers and product providers who would be affected. There will be SMSFs who will no longer be able to access a product because they won’t be classified as wholesale investors,” she said.
“Funds who were previously investing as wholesale clients may now need to be reclassified as retail clients. They will need to be advised by a licensed financial adviser at the very time when the industry is suffering a chronic shortage of advisers. It all adds up to a cacophony of problems.”
She added the association had used its 2025–26 pre-budget submission to highlight the pressing need for legislative certainty to ensure advisers could continue to operate with confidence when advising wholesale clients.
“Trustees, financial advisers, and product issuers are now faced with uncertainty on how to apply the wholesale investor tests, raising serious concerns about the implications for investment decisions and access to wholesale financial products,” she said.
“Without immediate intervention, the uncertainty could disrupt existing investment strategies, force SMSFs to divest from wholesale products, and create adverse consequences for broader capital markets.”
Furthermore, Scotchbrook said these long-standing issues have been ignored for too long, and AFCA’s recent determinations have now brought them to a head, urging the government to act swiftly to preserve investment choice for SMSFs and ensure that the wholesale investor framework operates as originally intended.
She also told delegates that the accounting and financial advice professions had a critical role in identifying and reporting financial abuse.
“A comprehensive Parliamentary Joint Committee inquiry in 2024 shone a light on the significant harm caused by domestic abuse via coercive control and financial abuse, and how perpetrators exploited loopholes in the laws and systems to engage in this nefarious activity,” Scotchbrook said.
“In this respect, the advantages of an SMSF structure that are so effective when used legally and ethically can be exploited by perpetrators – a point the parliamentary committee highlighted. SMSF professionals must be alert to these issues and to identify and report this abuse.”
The committee also recommended reviews of the superannuation system and the professional and ethical obligations as they related to financial abuse.
“While a review is welcomed, practitioners need to be aware of their existing duties and obligations under the law and through their respective codes of ethics and conduct.”
In my view, AFCA has demonstrated a lack of understanding of the structure of a SMSF and who the advice is given to. They have imported the APRA fund understanding.
The trustee receives investment advice and can be classified as wholesale with a QAC. So, if an adviser accepts the trustee is wholesale, why then is there a complaint? Likely as the adviser has not tested the Base quantitative test with a qualitative test (financial literacy assessment). So be it. If the work isn’t done at onboarding then complaints will occur.
Where the law needs to change is to harmonise the member status of the same fund. Unfortunately, super advice is deemed to be at retail unless the fund has $10m or more. This is a nonsense rule if, you take AFCA deciding investment recommendations to a SMSF trustee as being unsuitable versus, the higher standard (as required for the advice to be wholesale) to advise a 65 year old SMSF member to commence a pension. The rules need changing but to harmonise the treatment so there is no confusion. If a SMSF trustee is able to be classified as wholesale with a QAC and then adviser professional judgement of literacy, the member should also be able to receive their member account advice as wholesale.
It was a welcome sign that the PJC review called out the ASIC push in the call for a review of the thresholds etc. They also did not consider (ASIC’s) assertion that SMSF were vulnerable as being sound. ASIC is the a real problem here.