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SMSF concerns at AFCA ‘wholesale’ over-reach

Mike Taylor24 February 2025
Man on road to question mark

Despite a Parliamentary Committee having rejected changes to the wholesale investor regime for wont of evidence of wrongdoing, the Self-Managed Superannuation Funds Association (SMSF Association) believes problems are likely to arise because of the Australian Financial Complaints Authority (AFCA).

The association’s Head of Policy and Advocacy, Tracey Scotchbrook told the annual conference that recent AFCA decisions had cast a black cloud over the status of wholesale investors.

She said the determinations had created significant uncertainty across the industry, particularly for advisers and product providers.

“While the 2001 legislation that defined the wholesale investor test was poorly designed there was a broad industry consensus that a $2.5 million asset test and an investment of $500,000 in a financial product, set the wholesale parameters for investments acquired by SMSF trustees,” she told the conference.

“But the recent AFCA determinations have cast a black cloud over this consensus, creating a situation where a $10 million asset test could be the new benchmark for a consumer to claim wholesale status. This now opens the door for potential compensation via the AFCA – for a poor investment decision.

“In this regulatory environment, there will be genuine risks for advisers with SMSFs  who have been classified as wholesale under the $2.5 million asset test but are now potentially vulnerable to a $10 million threshold,” Scotchbrook said.

She claimed  it would not be just advisers and product providers who would be affected.

“There will be SMSFs who will no longer be able to access a product because they won’t be classified as wholesale investors,” Scotchbrook said.

“Funds who were previously investing as wholesale clients may now need to be reclassified as retail clients. They will need to be advised by a licensed financial adviser at the very time when the industry is suffering a chronic shortage of advisers. It all adds up to a cacophony of problems.”

“Trustees, financial advisers, and product issuers are now faced with uncertainty on how to apply the wholesale investor tests, raising serious concerns about the implications for investment decisions and access to wholesale financial products.”

“Without immediate intervention, the uncertainty could disrupt existing investment strategies, force SMSFs to divest from wholesale products, and create adverse consequences for broader capital markets.

“These long-standing issues have been ignored for too long, and AFCA’s recent determinations have now brought them to a head. The Government must act swiftly to preserve investment choice for SMSFs and ensure that the wholesale investor framework operates as originally intended.”

Mike Taylor

Mike Taylor

Managing Editor/Publisher, Financial Newswire

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