A recent Australian Financial Complaints Authority (AFCA) ruling regarding whether an individual satisfies the definition of a wholesale investor has significant implications for certain SMSF trustees.
“The AFCA determination refers to a certain section of the Corporations Act that says whether someone is [a] wholesale or retail [investor] turns on this issue of whether the financial service relates to a superannuation product. If it is considered to relate to a superannuation product, then [the individual is a retail investor] and [they will] need to meet the higher $10 million asset threshold before they can be classified as not being [a] retail [investor],” SMSF Association chief executive Peter Burgess told delegates at the industry body’s National Conference 2025 in Melbourne today.
“If [the financial service] is not related to a superannuation interest, then you can use the lower [asset threshold of $2.5 million].”
Burgess pointed out this determination runs contrary to standard industry practice within the SMSF sector where the $2.5 million asset threshold is used for a trustee to qualify as a wholesale investor.
This accepted method in applying the wholesale investor rules stems from the approach the Australian Securities and Investments Commission (ASIC) has adopted in recent years, he said.
“ASIC back in 2014 at the time seemed to be walking back its previous position on this, where it was saying if [the financial service] does relate to a superannuation product, therefore the $10 million threshold applies, [because it] acknowledged there was legal uncertainty as to how you apply [this rule and said] we won’t take any action if the $2.5 million test is used,” he explained.
“So the industry has adopted that [approach] ever since and has been using it ever since, the $2.5 million net asset or $500,000 product value test, to determine if someone is a wholesale or retail [investor].”
According to Burgess, the AFCA determination stipulates the Corporations Act is clear on the application of the wholesale investor definition and that the law was always intended to be interpreted, meaning the $10 million asset test should apply to SMSF trustees.
“So if this is going to be the [new standard], we’ve got some issues because there are obviously [some of your] clients out there that have been assessed as being wholesale [investors] who according to this [determination] are not wholesale but are retail [investors],” he said.
“It means they might have to devest themselves out of these products and it also opens up [the possibility for action against] inappropriate advice because they will have access to AFCA.
“So what we’re asking for here is an urgent legislative fix – a legislative instrument making it clear the $2.5 million test can be used.”
