ASIC advisory consumer group urges tougher wholesale investor test

The peak body for Australian consumer groups which also advises the Australian Securities and Investments Commission (ASIC) has thrown its weight behind changing the rules on wholesale and retail investors.

The Consumers Federation of Australia (CFA) has told the Parliamentary Joint Committee on Corporations and Financial Services that it is backing the position put by the Queensland Consumers Association which argues strongly for changes to the threshold including excluding principal places of residence and superannuation.

The CFA pointed out to the Parliamentary committee that it is represented on ASIC’s Consumer Advisory Panel and that the Queensland Consumers Association is a member of ASIC’s Queensland Regional Liaison Committee.

ASIC’s own submission to the Parliamentary Committee recommends:

• increasing the financial thresholds for classifying a person as wholesale to account for inflation;
• introducing a statutory mechanism to increase the financial thresholds over time;
• introducing penalties and other sanctions for misuse of the accountant’s certificate mechanism for classifying wholesale investors and clients; and
• revising the current subjective test for Australian financial services (AFS) licensee assessment of an investor as wholesale to be more objective or increasing the level of prescription in the test.

The Queensland Consumers Association submission being backed by the CFA said that excluding the principal residence from wealth tests was essential in circumstances it is not an income producing asset.

It also said that because of its importance as a source of retirement income, consideration should also be given to excluding superannuation from the wealth test.

“To ensure that any new financial thresholds do not again become outdated, the legislation should contain a mechanism that will enable the new thresholds to be adjusted regularly to reflect changes in incomes, asset values, etc,” it said.

“To reduce the risk that consumers who require the protections provided by being a retail client, consideration should be given to requiring that to be classified as a wholesale investor both the income and the wealth threshold test should be satisfied.

“To ensure that consumers considering entering into an arrangement that will result in them being treated as a wholesale or sophisticated investor are aware that this will result in them waiving their rights as a retail client, they should be provided with clear consistent written information about this (and what these rights are) and be required to acknowledge in writing that they accept this waiver of their rights.

“To facilitate informed consumer choice, any advertisements, etc. for financial products that are only available to wholesale investors should indicate this very prominently and very legibly,” the QCA submission said.