The thresholds around what counts as a wholesale investor have been under scrutiny over the last two years, with a parliamentary committee in February recommending no changes to the classification rules.
While nothing is set to change under law, many have viewed the Australian Financial Complaints Authority (AFCA) affirming that it would treat any self-managed super fund (SMSF) with less than $10 million as retail, regardless of whether the member would meet a wholesale threshold outside of super, as a change.
This is due to a long-standing Australian Securities and Investments Commission (ASIC) position that it would not take any action over these SMSFs being treated as wholesale.
Speaking on a recent ifa podcast, AFCA lead ombudsman for investments and advice, Shail Singh, said this position doesn’t extend to “private action”, pointing to section 761G(6) of the Corporations Act.
“If you start with the Corporations Act, [it] treats everyone as a retail investor unless you fall into a category of wholesale,” Singh said.
“That’s the way the law is designed. It’s sort of you start as retail unless you fall into that category.”
He added: “But what the Corporations Act says is that if the investment is in relation to a super product, which an SMSF is, then anything under $10 million is retail. It’s clear. I don’t think there’s much argument about what it says.”
He conceded that some may take issue with AFCA interpreting that as saying SMSF advice to an SMSF is in relation to a super product.
“They have the opportunity to raise that with us on any individual matter and we consider that argument on its merits,” Singh added.
“When people come to us with these complaints, we have to make a decision. We can’t sit there and just say, ‘Oh no, we’re gonna wait.’ We have to make a call. And that really requires interpretation of the law.”
Turning to ASIC’s no enforcement decision, which dates back to a 2014 media release, Singh conceded that the complaints authority does need to be consistent with what ASIC’s doing.
“However, private actions, which is a matter that’s brought to AFCA, are excluded,” he said.
According to Singh, this remains “completely consistent” with the regulator’s stance.
“It’s so technical, I understand [the confusion] completely. But what we say is that’s what the law says and if that was not the intention of the legislature, they should change that law,” Singh added.
He also dismissed concerns that this decision would have an impact on the calculation of the Dixon Advisory complaints flowing through into the Compensation Scheme of Last Resort (CSLR), despite many of these cases being related to SMSFs and clients that may have met the wholesale definition outside of super.
“That’s just not true. I just need to clear that up,” Singh said.
“Dixon treated all these investors as retail. These are retail investors with SOAs. Remember I talked about the fact that the Corporations Act treats you as retail unless you’re wholesale. It never treated these people as wholesale.
“There were no certificates, there was none of that stuff. So, I just want to clear that up because that’s just not the case.”
To hear more from Shail Singh, tune in here.
