SMSF concerns at AFCA ‘wholesale’ over-reach | Australian Markets

Regardless of a Parliamentary Committee having rejected adjustments to the wholesale investor regime for wont of proof of wrongdoing, the Self-Managed Superannuation Funds Affiliation (SMSF Affiliation) believes issues are more likely to come up as a result of of the Australian Monetary Complaints Authority (AFCA).

The affiliation’s Head of Coverage and Advocacy, Tracey Scotchbrook advised the annual convention that current AFCA selections had forged a black cloud over the standing of wholesale traders.

She stated the determinations had created vital uncertainty throughout the industry, significantly for advisers and product suppliers.

“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 advised the convention.

“However the current AFCA determinations have forged a black cloud over this consensus, creating a state of affairs the place a $10 million asset take a look at could possibly be the new benchmark for a shopper to say wholesale standing. This now opens the door for potential compensation through the AFCA – for a poor investment choice.

“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 stated.

She claimed  it will not be simply advisers and product suppliers who could 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 stated.

“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.”

“With out fast intervention, the uncertainty might disrupt present investment methods, pressure SMSFs to divest from wholesale merchandise, and create antagonistic penalties 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.”