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ASIC restates wholesale SMSF investor position

The Australian Securities and Investments Commission (ASIC) has clarified its wholesale investor test in regard to SMSF trustees.

“Where the financial service relates to a superannuation product, a trustee of an SMSF will be classified as a retail client under the Corporations Act unless the fund holds net assets of at least $10 million at the time the service is provided,” the corporate regulator said in a recent statement issued on the topic.

Classification as a wholesale investor will allow SMSFs access to a wider range of financial services products, but with a lower degree of consumer protection than afforded to retail investors.

In regard to non-superannuation products, an individual will be deemed a wholesale investor if they have $2.5 million in net assets as certified by a qualified accountant or if the investment is at least $500,000 in value.

In making the announcement, ASIC also outlined its enforcement approach to the new test.

“ASIC’s revised approach means that, for example, where the trustee of an existing superannuation fund receives advice about how to invest the fund’s assets, ASIC will not take action if the person providing the advice determines whether the trustee is a wholesale client based on the general test mentioned above (for example, if the trustee has net assets of at least $2.5 million), rather than applying the higher $10 million net asset test,” it said.

“ASIC will adopt a similar approach to a trustee who subscribes for financial products on behalf of an existing fund.”

The corporate watchdog stipulated while it was not looking to take enforcement action against advisers who recommended wholesale products to SMSF clients that did not meet the $10 million net asset threshold, those advisers were still open to other forms of legal action in the event of a loss.

As such, ASIC warned advisers needed to assess their legal risks before making such commercial decisions.

It also emphasised it would not be lenient on advisers who treated retail clients as wholesale ones without the necessary certificate from a qualified accountant confirming the $2.5 million net asset threshold.

As a result of the new positon on wholesale investors, “QFS150 When financial services are provided to a trustee of a superannuation fund, are they provided to a retail client?”, which had previously helped address the issue, has been withdrawn.

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