The parliamentary joint committee on corporations and financial services has opened an inquiry into the wholesale investor and wholesale client tests.
According to the terms of reference for the inquiry, it will review the current wholesale investor and client tests, including the “legal requirements, identification of all contexts in which the tests are relevant, the consequences of an investor/client meeting the relevant test, and the application of the tests in practice”.
It also said it would examine the historical development of the tests in Australia, consider previous reviews and inquiries, and look at comparable overseas jurisdictions, including any proposed or recent changes to tests used in similar contexts.
The committee has called for written submissions, with any stakeholders having until 15 May 2024 to make a submission.
Originally announced as part of the 2022 federal budget, Treasury was tasked with reviewing the Managed Investment Scheme (MIS) regulatory framework in March 2023, with the threshold to qualify as a sophisticated investor included in the review.
According to a statement from Financial Services Minister Stephen Jones at the time, the review aimed to examine whether the regulatory framework is fit for purpose, identify potential gaps, and consider what enhancements can be made to reduce undue financial risk for investors.
Despite media speculation earlier this year that the threshold to qualify as a sophisticated investor is set to increase from $2.5 million in net assets to $4.5 million, Financial Services Minister Stephen Jones has denied any decision has been reached.
In a video posted to LinkedIn in February, the minister said nothing will be decided until Treasury has completed its review.
“The review is ongoing and Treasury is still looking into the things that they haven’t made their recommendations to government on,” Jones said.
“So obviously, government hasn’t made any decisions about this either. When we do, we’ll maintain our commitment to the Australian people and to investors to work collaboratively and consultatively to make sure that we get the best outcomes for as Australian consumers and investors.”
While the minister conceded that the sophisticated investor thresholds are an “important element” of the terms of reference provided to Treasury, it is just “one element”.
“These thresholds haven’t been looked at in quite some time. We just want to make sure that they are still serving the right purpose,” Jones said.
Research undertaken by PwC and Data Analysis Australia, on behalf of the Financial Services Council (FSC), projected that almost 20 per cent of Australian households would be eligible to buy wholesale products without retail consumer protections in less than a decade.
According to the FSC, this would leave Australian investors potentially vulnerable due to not properly understanding the associated financial risks.
In order to reduce the number of households that would meet the threshold, the FSC has proposed a $5 million net asset threshold for the wholesale investor test, which it said would bring the number of Australian households eligible back down to 3.1 per cent.
“The increase in property prices in the past two decades since the threshold was implemented has contributed to more Australians being classified as wholesale investors because of the increase in value of the family home,” said FSC chief executive Blake Briggs.
Average Joe trying to get ahead
As usual the rich get richer thanks to the pollies.
So all the top shelf investments and opportunities are only for the superrich and privileged.
If you don’t have money then sorry you can have the average investments you are not smart or rich enough to be a wholesale investor.
The only protection for the wholesale client is that the average joe will not be catching up any time soon.
I would say that many pollies should be able to tick the new box, no worries.
While they’re at it they should classify SMSFs as a wholesale product, and require all SMSF members to pass the sophisticated investor test.
This is such a scam. 90% of “sophisticated investors” are not sophisticated at all. Just because someone has a lot of money to invest from an inheritance or the sale of a business doesn’t make them sophisticated at all….
They should uplift the limits, but also require the client to sit a test on investments, markets and the protection they are signing away etc. Which shouldn’t be a problem if they are truly sophisticated investor.
Perhaps the same should apply to advice being delivered from/on behalf of product manufactures?
When has a SoA helped explain anything to a retail client anyway? Or helped the client understand their decisions? It’s not the SoA it’s the Adviser who does that for them. Everyone should be treated as a Wholesale from a compliance perspective and given a simple 1-pager that discloses the pros & cons of what’s recommended along with the costs. That’s it. Simple.
New “intelligence” test for politicians?
Have these muppets only just now realised that the smarter adviser is almost exclusively catering for to the sophisticated client?
Why? Because we cannot afford the cumbersome compliance costs relative to fees we wish to charge (for all the BS fees we need to pay ASIC & AFSLs).
The amount of assets you have can be irrelevant to your investment acumen. Scrap the limit – apply a test as the sole criteria