financial advice, Investments, SMSF

Role determines wholesale status

Wholesale client Retail client SMSF Financial advice

The wholesale client provisions are complex and advisers must determine the SMSF role an individual is acting in before using them.

A senior legal professional has cautioned practitioners on the need to make a distinction as to whether they are providing services for SMSF trustees or fund members when considering the use of the wholesale client rules.

Speaking at the SMSF Association National Conference 2024 in Brisbane last week, Holley Nethercote Lawyers partner David Court told delegates: “With SMSFs we’ve got to look at this distinction between the client as a member and the client as a trustee because if the client is a member, we have to treat them as retail.”

Court clarified his statement, giving circumstances where advice would be considered as being provided to a member and those where the interaction would be classified as involving a trustee and therefore a wholesale client.

“So just some examples I’ve come up with – [advice dealing with] setting up an SMSF, joining an existing SMSF, switching between super funds, levels of contributions to an SMSF, decisions to receive a pension from an SMSF – [all of those pieces of advice] have to be treated as [being provided to a retail [client]. There is just no way around that unfortunately,” he noted.

He pointed out this falls under the general rules where superannuation clients are always to be treated as retail clients.

“However, if we switch our hats and talk to the clients in their role as trustee, it’s different because this superannuation rule doesn’t apply in that situation,” he said.

“If I’m telling you as trustee how you should invest the fund’s assets, I’m not giving you advice about superannuation, I’m giving you advice about securities. Or if I’m advising you about how much death cover to have over your members, I’m giving you advice in relation to life insurance, not superannuation.

“So in that situation, if you’re advising the SMSF trustee in that role, that’s a situation where you can treat the SMSF as wholesale.”

He took the opportunity to emphasise how important it was for advisers to get this distinction correct.

“If you misclassify a person as a wholesale client, then the consequences of that are fairly drastic and for you it’s probably a risk management exercise,” he noted.

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