ASIC clarifies retail/wholesale test for SMSF trustees

The Australian Securities and Investments Commission (ASIC) has ended ongoing legal uncertainty by clarifying how it will apply the wholesale investor test to self-managed superannuation funds (SMSFs).

To be treated as wholesale clients, SMSF trustees must now have net assets of at least $2.5 million (compared to a higher $10 million net asset test in the past), or income of $250,000 a year for the past two financial years, or be making an investment worth a minimum $500,000.

The distinction is important because wholesale clients have access to a wider range of investments, but they do not enjoy all of the consumer protections that apply to retail clients. Under the new Future of Financial Advice (FOFA) legislation, only retail SMSF clients are required to be given a financial services guide, a statement of advice or a product disclosure statement. Also, the FOFA obligations concerning best interest obligations, the charging of ongoing fees and prohibitions concerning conflicted remuneration apply only in relation to retail clients.

The regulator observes: “Given the importance of the retail client consumer protections, ASIC will take regulatory action where financial service providers miscategorise their clients and, for example, treat investors as wholesale clients based on net assets of $2.5 million without a certificate from a qualified accountant.”

SMSF Professionals’ Association of Australia (SPAA) CEO and managing director, Andrea Slattery FAICD, believes that the new tests are more appropriate for SMSF trustees seeking to be treated as wholesale clients.

“SPAA strongly believed that the requirement that an SMSF had to hold $10 million of net assets was an incorrect interpretation when the advice was relevant to an investment being made by an SMSF trustee.”

Although SPAA fully endorses the ASIC clarification, the organisation believes there is still uncertainty about how the $2.5 million asset test applies to SMSF trustees.

“ASIC’s statement says that the threshold applies ‘if the trustee has net assets of at least $2.5 million’. We need clarification from ASIC whether this means only assets in the SMSF, the member’s balance in the SMSF, and also includes the trustees’ personal assets outside superannuation,” says Slattery.

“The interpretation of this issue is fundamental to how the wholesale investor test functions, not only to trustees but to the accountants that issue certificates stating that an investor meets the wholesale investor test thresholds.”

Guidance for investors on managing their super is available on ASIC’s MoneySmart website.