A financial services compliance professional has warned SMSF advisers solely servicing wholesale investors to mitigate their business risk by avoiding advice compliance obligations pertaining to retail clients.
Specifically, Alexis Compliance and Risk principal Christina Kalantzis said she was referring to the legal requirement for practitioners operating in the retail space to be members of the Australian Financial Complaints Authority (AFCA).
“We’ve got a situation at the moment where an adviser’s client was purely wholesale and the practitioner has only got a licence to service individuals who are wholesale investors. What happened was the industry body of which the adviser was a member thought in its good merits would encourage all of its members to be a part of AFCA. Remember the law doesn’t require individuals operating under a wholesale AFSL (Australian financial services licence) to be members of AFCA,” Kalantzis told delegates at SMSF Professionals Day 2023, co-hosted by selfmanagedsuper and Accurium, in Melbourne last Thursday.
“So in the case I’m referring to, the client invested $1.2 million and made a complaint to AFCA about their situation. We deemed that client to be wholesale, but AFCA didn’t think that person was a wholesale or sophisticated investor and it has the discretion to deem a person to be a retail investor or not.”
Due to the practitioner having classified the client as a wholesale investor, none of the advice safeguards relevant to retail investors, such as issuing a statement of advice, were followed, creating significant compliance and business risks, she pointed out.
“Do you think the practitioner had PI (professional indemnity) insurance for retail clients? No, so if there is a determination made against him, he will have to pay for that as well,” she said.
“So there are a lot of ramifications in situations like this and I think perhaps AFCA has perhaps got a bit of jurisdiction overreach here.” ,
To learn more about some of the current compliance issues facing advisers, register for SMSF Professionals Day 2023 to be held in Sydney on 8 June. Visit https://web.cvent.com/event/e52ab0af-a2d3-46ef-bd98-4c91b6509c7a/summary?RefId=Summary to secure your seat.
