The definition of who is considered a wholesale investor articulated by the Australian Financial Complaints Authority (AFCA) has become the new default position in the absence of other guidance or legislative change, an SMSF legal expert has pointed out.
DBA Lawyers director William Fettes said the view taken by AFCA that SMSF trustees and members will only be viewed as wholesale clients if their fund has $10 million or more in assets was based on the Corporations Act and expressed in a determination made in June 2024.
“Section 761G(6) of the act talks about products and services relating to superannuation and retirement savings accounts and says if a financial product or service relates to superannuation it will be classified as retail unless the trustee of the super fund has net assets of at least $10 million,” Fettes told attendees of a recent webinar hosted by the law firm.
“The Australian Securities and Investment Commission (ASIC) had a softer regulatory stance on this issue over the years and weren’t strictly enforcing that wholesale test being at the $10 million threshold, particularly where there was a concept of the individual wealth test being applied based on the $2.5 million threshold.
“This is interesting because industry practice was at that lower end and ASIC statements [about not enforcing the upper threshold] has given some support to the concept.
“AFCA’s view is the trustee’s personal wealth or experience is irrelevant to their classification and SMSFs must have net assets of $10 million plus to qualify as wholesale clients.
“ASIC’s prior leniency in their publications doesn’t bind AFCA so this is a strong change and it’s unfortunate we haven’t had legislative clarity here which would have been warranted.”
“AFCA has a very strong position here that the wholesale status for an SMSF needs to be based on the $10 million threshold, and you would be going out on a limb to position that fund under the individual wealth test,” Fettes explained.
“It’s very important to take this on board because ASIC’s guidance won’t give you legal immunity from the complaint process at AFCA so you need to review your practices there.”
