Insufficient evidence that the current definition of a wholesale investor has caused serious harm to investors is undermining the arguments for its change, according to the Stockbrokers and Financial Advisers Association (SAFAA).
The association made the claim in a 15-page discussion paper analysing the benefits and consequences of changing the wholesale investor test after increasing calls across the financial services industry for change.
SAFAA chief executive Judith Fox said the paper, “Does the wholesale investor test need to change?”, aimed to generate discussion about the threshold test, which has not been amended since its introduction in 2002.
The paper argued poor investments by local councils in the lead-up to the global financial crisis were a failure of governance and other cases, such as Mayfair 101, were outliers that had misused the test.
“This paper questions whether there has been a sufficient identification of harm to investors in recent calls to justify amendment of the wholesale investor test and whether the significant disruption to clients and advisers that would arise from any change to the definitions can be justified in light of the impact it would have on access to and affordability of advice,” Fox said.
“A key question is whether reference to outlier misconduct should be utilised to disrupt significant numbers of clients’ investment strategies and licensees’ business models. Yet recent calls for change take the view that a range of Australian investors should be excluded from accessing investment opportunities due to outlier misconduct or the potential for outlier misconduct.
“In light of this, calls for change to the wholesale investor test appear to be a solution looking for a problem.”
She said the paper aimed to address the increase in calls for changes to the wholesale investor test and the impact on advisers as well as their clients.
“Given the significant implications for stockbrokers, investment advisers and their clients should any change to the wholesale investor test be introduced, it is important that any call for change be supported by evidence,” she said.
“A key question is whether the voice of the client has been sought. Before embarking on any further reform it is important to consider the views of wholesale clients who will be impacted by any change.”
Industry stakeholders will be able to provide feedback on two separate reviews of the test –the government’s Quality of Advice Review – Draft Terms of Reference and the Australian Law Reform Commission’s “Interim Report A Financial Services Legislation ALRC Report 137 – with consultation for both closing this month.
