A senior accounting firm executive has labelled the wholesale or sophisticated investor thresholds applying to SMSFs out of date as they are no longer commensurate with current-day asset values.
A decision handed down by the Australian Financial Complaints Authority in 2024 reinforced the rule SMSF trustees are by definition retail investors and can only be treated as wholesale investors if they meet the high threshold of having $10 million worth of assets in the fund.
However, until that point, trustees were able to gain access to wholesale investment opportunities if they had $2.5 million in net assets or had invested at least $500,000 in a single product and obtained an accompanying certificate from an accountant confirming they were a sophisticated investor.
“Those limits have been around for 25, 30, however many years and they’re, in my view, so outdated and way too low for someone to be considered [a sophisticated investor],” Cooper Partners director and head of SMSF and succession Jemma Sanderson told delegates at The Tax Summit hosted by The Tax Institute in Sydney last week.
“Back then, $2.5 million of net assets, that was substantial and the people who were involved in those sorts of investments probably were sophisticated.
“[But] now, just through property prices going up, a lot of people have got net assets worth $2.5 million without even thinking about it. So [does that make them] truly sophisticated enough [for] those additional compliance and disclosure obligations [of product providers] not to apply to them?”
According to Sanderson, using a dollar amount to determine whether an individual is a wholesale or sophisticated investor is in general inappropriate.
“I think a lot of [those] people, if you chatted with them, [you would find] they don’t understand the fundamentals of [products] they are investing in, so really should they be [considered] sophisticated?” she said.
Darin Tyson-Chan
Editor
Darin is the founder and publisher of Benchmark Media, an independent publishing house whose mastheads include financialobserver, selfmanagedsuper and smstrusteenews. He has been covering the financial services space for over a decade and in this time he has worked for a variety of trade publications. Darin has also written for the Money section published in The Sydney Morning Herald and The Age.
Articles by Darin