In a paper examining the question of whether the wholesale investor test should change, Stockbrokers and Financial Advisers Association (SAFAA) argued that change would spell significant disruption and attendant costs.
It noted that changes would inevitably result in clients who were previously defined as wholesale being reclassified as retail.
“These impacts would not be uniform across the financial services industry, with some businesses and some clients being much more affected than others,” the SAFAA said.
It warned that changing the definition of wholesale clients could further exacerbate the decline in availability and affordability of advice.
“The financial advice sector has been subject to ongoing significant regulatory reform over a number of years. If the definitions are changed, consideration needs to be given to the impact on some businesses which have already moved away from advice to retail clients, as they could become unviable as the pool of potential clients shrinks,” the SAFAA said.
“This in turn may exacerbate the decline in availability and affordability of financial advice.”
The association admitted that “the rationale for changing the test is not clear”.
“Licensees have aligned their business model to the current regulatory framework, including the wholesale client definitions. Advisers who have adopted a wholesale client-only business model are not required to have satisfied the educational and exam requirements that allows them to provide advice to retail clients,” the SAFAA continued.
“They would therefore find themselves treated as new entrants, subject not only to the education and exam requirements but also the Professional Year requirements and without a livelihood.”
Finally, the association stressed the impact on clients at a time when adviser numbers are rapidly shrinking.
“Changes to the test that re-classify clients may result in them losing access to their adviser of choice or force them to sell down their holdings,” the SAFAA said.
“Any change would disadvantage a significant cohort of Australian investors who have not been consulted on their views of whether such a change is welcomed by them.”
I will say it worried me too, when I saw the recommendation. I work in insurance and although the wholesale/retail distinctions are very complex (size of business and product type under the Corps Act), it has been accepted for two decades. It would mean an overhaul of systems etc. which would take time and of course money. However having said that there are far too many defns of small businesses in the insurance context (State and Federal) which causes a lot of complexity and room for inadvertent error.
Cost going up as you have to play by the normal rules …. 90% of wholesale clients are retail…… Just because you have a large amount of money if you sold some land or business doesn’t make you sophisticated!!! SAFAA is just worried about losing clients and if these clients knew the rights they were signing away to be a “sexy wholesale” client 90% of them wouldn’t sign….
Why not expand the rules to allow more to take advantage of it? Many clients don’t want a SoA (the cost, the wait or the rubbish that’s in them), FDSes (never met a client who DOES want one), Opt-Ins (likewise with FDSes), etc. Compared to advice from other countries, even a complete Fact Find can be onerous for some. At the end of the day, not everyone sees the value in, needs, nor wants “full” financial advice as far as the process in this country goes. So why not allow people to receive the advice and service in the way they wish to? Have an opt-out of different components, or simply have the ability to classify someone as “sophisticated” or “experienced” and therefore able to benefit from the HNW rules provided they have a university degree and “profession” of some description. OR simply base Advice and its delivery on other professions such as medicine or law. The government demands we become a profession, so why not allow us to cut out all of the garbage and operate as other professions do? The last time I went to my lawyer for advice there was no documentation and no disclosures nor disclaimers. The last time I went to my doctor it was the same even though he prescribed me medication with potentially life-ending side effects.
Fully agree- excellent post 🙂
But then how could all the hangers-on survive. The pedantic compliance departments? the licensees? the prescriptive ASIC staff? etc etc.
Henry, sorry, but that’s all old thinking trying to push back needed change. To fully understand a clients needs, not just their wants ( or the advisers wants ) a full appropriate fact find must be done. The SOA also provides both the client and the adviser with legal protections. It gives the adviser the opportunity to discuss, or just point out, other areas that the client should consider.
And I wish some advisers would stop using completely inappropriate comparisons of our trade to that of medical professionals. There is such a massive difference in how these professions need to interact with clients and patients. Continuing this type of comparisons really just point to how insular the financial services industry is in some areas and with some participants.
Again, sorry, but I cannot support your comments in any way
Wasn’t sure whether you were being sarcastic or not. I hope you were
I wasn’t
Looks like we’ve found someone from the compliance department.
Im not but why would that make a difference? The introduction of quality fact finds help clients get a better standard of advice. And an SOA, long or not, provides a lot of information that the client should know. If the choose not to read it, like for example the Apple Terms and Conditions, then its their fault. Its also helped increase the quality of some advisers.
And an SOA, long or not, provides a lot of information that the client should know. – but rarely wants to read.
More paperwork does not mean better client outcomes. You do now that less than 20% of people read a PDS………
How about rather than playing at the edges of financial planning ASIC and the government do something novel — improve financial planning for everyone so that more than the top 10% via net wealth can afford to receive advice
Easy as – get the government to pay for it like medical services. …or at least let all advice be tax deductible.
making it tax deductible makes it all about being able to more easily justify your fees. No, do something novel and make it easier to give advice.
Potential fees aside, isn’t it in the (wholesale) client best interest to be treated as a retail client and afforded the legal protections that this entails? With some exceptions to the rule, it is arguable the business practice of ONLY going after wholesale clients, or choosing to treat a given client as wholesale, is in the adviser best interest. Breach of FASEA. I’ve seen wholesale client fees higher than if they were to be provided a SoA. Just because you can get away with charging more doesn’t mean you should, particularly when less work (and risk) is involved.
What are the ‘legal’ protections that they get afforded by being retail exactly? Its just a deluge of paperwork that none of them ever read.
What are the protections a retail client gets, well, If the retail client wakes up one morning and doesn’t like what the adviser has done for them, they just complain and get paid out a lot of money and the adviser, who probably did a wonderful job based on what the client wanted then, gets sued and losses a lot of money and gets a visit by ASIC and possibly losses their job, and their licencee walks away from them.
THats what happens.
Spot on
Completely agree.
Just a joke. You could fit the number of retail clients that read a prospectus into a phone box. AFCA also hears disputes from wholesale investors despite their charter saying they dont. This achieves nothing other than binning another raft of retail clients. We’re run by idiots.
Not just advisers – wholesale product offers are a significant part of the commercial property sector. Many single asset funds just make no sense when you add the overhead of a retail offer document. Half the accountants around the country are running syndicates and other structures that should have an AFSL and those that do the right thing work with a trustee to issue an IM. Every step of regulation over the past 5 years has utterly failed to deliver any benefit to consumers and we are hollowing our financial services industry for no reason. The FSC’s objective with respect to wholesale is clear – wipe them out so that more money funnels to inefficient, large scale offerings.
It is a stretch to say that it will add significant costs to clients and advisers. Maybe some advisers but there are plenty of advisers who provide little or no wholesale advice. The definition of a wholesale investor hasn’t been updated for a number of years and is due for an overhaul.
It will negatively impact those that are making everyone a wholesale client, which I don’t see as a bad thing.
It does not seem to stop accountants classifying whoever they want as wholesale clients. Nor does it stop them just telling clients of real advisers that they can provide advice and do so without a SoA and charge via the general accounting fee. It also seems to not motive that useless regulator ASIC do do a damned thing about any of this.
Going forward, the Wholesale test should be turned on its head. (1) clients should either have to satisfy a financial test like the existing one but with higher thresholds, or a knowledge test. (2) Existing Wholesale advice clients should be grandfathered as wholesale. (3) Existing clients who have invested in Wholesale products should be grandfathered into existing products. (4) Financial advisers should be able to sign Wholesale Investor Certificates. Often they are in a better position to know the client’s position than accountants.
Make the clients do a FASEA exam??? 😉
more grandfathering is a great idea 🙄
Significant cost to clients and advisers and will restrict affordability of advice as well as an impost on advisers…so it’s more than likely going ahead then?