Compliance, Investments

Wholesale thresholds need fixing

wholesale investors SMSF assets test income

The definition of a wholesale investor in an SMSF context must be redefined with regard to the thresholds applied to the asset and income tests.

The definition of a wholesale investor must overhauled within the context of SMSFs with trustees lacking clear guidance around applicable thresholds for the asset test while accountant certificates are no longer fit for purpose and being misused, according to the SMSF Association.

In its submission to the recent Treasury consultation for the review of the regulatory framework for managed investment schemes, the SMSF Association noted the definition of a wholesale investor, and the thresholds applied to that definition, have remained unchanged since their introduction 2001.

Specifically, the submission noted there were two figures on the table for SMSFs but neither were backed up by any formal guidance.

“While the acquisition of a superannuation product will always be considered a retail client product or advice, the placement of investments and insurance products within the fund can be made as either a retail or wholesale client. However, the operation of the assets and income test for an SMSF are unclear,” the submission stated.

“The question is whether the $10 million professional investor test for superannuation funds applied to SMSFs, rather than the $2.5 million asset test.”

The industry body noted in 2014 the Australian Securities and Investment Commission (ASIC) issued a media statement indicating where the $2.5 million asset test was applied for an SMSF no regulatory action would be taken.

“We note that prior to this announcement, ASIC held the view that the $10 million asset test would apply in an SMSF context. Despite the 2014 media release, no formal guidance has ever been issued,” it said.

“This gap in the legislative framework poses a significant risk to advisers, accountants, and their clients.”

The SMSF Association also questioned the ongoing use of accountant’s certificates and noted they created a conflict with the current financial services licensing regime.

The submission highlighted an unlicensed accountant was not able to advise clients as to whether they should acquire or dispose of a financial product but accounting certificates undermine this obligation.

Addressing this issue during a legislation and policy update to members last month SMSF Association head of policy and advocacy Tracey Scotchbrook acknowledged: “When we think about when these rules were put in place [in 2001], the whole financial advice regulatory environment was fundamentally different to what it is now.”

“While an accounting certificate is a statement of fact around whether or not someone meets certain income or asset tests, the issue is if a client is clearly not suited for this, the accountant has a professional and ethical obligation to the client but would then have a conflict around the operation of the financial service advice and the licensing regime.”

The practitioner body added it had noted an increase in requests for certificates that required accountants to attest to information beyond the statement of facts required which was placing accountants at significant, personal risk.

“We have also heard of circumstances where accountants have been approached, unsolicited, by non-clients, who have been referred to the accountant, seeking the completion of an accountant’s certificate,” she said.

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