FASEA code discrepancy could cause advisers grief

An industry body has suggested the legal definition of a sophisticated investor needs to change to reflect competency rather than material wealth, as grey areas between the FASEA code and Corporations Act leave advisers open to regulatory action.

FPA head of policy and standards Ben Marshan told ifa that as FASEA guidance stated relying solely on the current wholesale investor definitions was a breach of the code of ethics, this needed to also be expressed in the Corporations Act to reduce confusion in the industry.

“FASEA, through the code of ethics, has already suggested that financial planners should consider the clients’ level of sophistication, and not just rely on a dollar threshold,” Mr Marshan said. 

“If this is what planners need to consider, it should be spelt out in the Corps Act to ensure there is consistency.”


FASEA’s 2019 code of ethics guidance document suggests that advisers who do not produce personal advice documents for clients who have over $2.5 million in assets, but may not have enough financial literacy to understand the advice being given, would be in breach of Standards 1 and 2 of the code.

In its recently released policy paper, which also suggested a move to individual registration of advisers from the current AFSL model, the FPA called for an increase in the dollar value threshold of the sophisticated investor test, and for a method of automatic indexation to be provided.

The association also suggested a measure be inserted to assess clients’ financial capability as well as the dollar value of their assets before they could be classified as sophisticated.

Mr Marshan said the FPA did not “have a specific figure in mind” in terms of how much the test should be increased, but said given this piece of the legislation was last addressed in 2001, an update was needed.

“The current figures are over 20 years old and given the changes in the wealth profile of the country, it is appropriate to reconsider the figures, and even the tests more broadly,” he said. 

“Income and assets don’t mean someone understands sophisticated financial products.”

FASEA code discrepancy could cause advisers grief
Ben Marshan
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