‘Insufficient evidence’ to change wholesale advice rules

Mike Taylor

Managing Editor and Publisher

4 October 2023

There is not sufficient evidence of market failure relating to financial advice relating to wholesale advice around managed investment schemes (MISs) to warrant changes to the regulatory regime, according to the Stockbrokers and Investments Advisers Association (SIAA).

Further, the SIAA has told Treasury that without evidence of harm or market failure, it does not believe sufficient grounds exist to justify changes to the law.

In a submission to Treasury dealing with the current Review of the Regulatory Framework for MISs, the SIAA said that it had yet to be presented with evidence that there is a market failure in relation to financial servicing the higher end of the income and asset distribution, “particularly when such individuals have taken deliberate steps to opt out of the retail investor regime”.

It said that many of the managed investment schemes referred to in the Treasury consultation paper were sold to both wholesale and retail clients and pre-dated the introduction of the design and distribution obligations (DDO) regime.

“Client losses incurred in those schemes were not due to the wholesale investor test thresholds, but to the features and circumstances of the schemes themselves and the manner in which they were marketed,” the SIAA submission said.

“In the matter of the Trio Capital collapse, investors were the victims of fraud. We don’t consider that failures of these schemes should be used as a reason to change the wholesale client test either for managed investment schemes in particular, or more generally.

“The wholesale client test has application across financial services more broadly and is not confined to managed investment schemes,” it said.

“As we pointed out in the Treasury roundtable on 14 September 2023, the provision of wholesale advice is not a regulatory ‘free for all’,” it said.

“Wholesale investors have protections under general law, the Market Integrity Rules and the Corporations Act, specifically:

• those arising from section 912A of the Corporations Act that, amongst other things, require financial services licensees to provide financial services ‘efficiently, honestly and fairly,’ manage conflicts of interest, comply with financial services laws, ensure their representatives do so as well and are adequately trained and competent
• the consumer protection provisions of the Corporations Act including those dealing with misleading and deceptive conduct, unconscionable conduct, representations and warranties, and
• a fiduciary duty to act in the client’s best interests.

“Wholesale investors can continue to receive general advice and execution-only services and ask for personal advice under contract from their adviser,” the SIAA submission said.