In accordance with the Corporations Act, for an SMSF to be considered a wholesale investor in financial services related to superannuation products, it must possess assets exceeding $10 million. The typical wholesale tests concerning a trustee's assets, income, or investments do not apply within this context. Thus, regardless of the trustees' financial acumen or personal wealth, an SMSF with assets below the stipulated $10 million is classified as a retail investor.
Though the Australian Securities and Investments Commission (ASIC) announced in 2014 that it wouldn't enforce the wholesale classification, firms could still face legal risks from consumer actions such as complaints to AFCA. Singh emphasizes that AFCA adheres to the legal designations within the Corporations Act when adjudicating complaints, although the sophistication of the complainant is factored into decisions on compensation if a complaint is upheld.
Singh presented a case where an SMSF trustee, also the sole director and beneficiary, engaged in a managed discretionary account service with W Pty Ltd for margin FX trading — a service for wholesale clients. Despite initial success, the venture incurred significant losses due to currency fluctuations. The SMSF sought redress, arguing incorrect wholesale classification. While AFCA acknowledged the classification as erroneous, they considered the trustee's experience in adjusting compensation.
The case underscored the importance of strictly adhering to asset thresholds when classifying investors. Financial advisers are reminded that an SMSF must exceed $10 million in assets to be deemed wholesale, and ASIC’s stance does not hinder SMSF trustees from proceeding with AFCA complaints if their funds are below this threshold. While sophistication may temper compensation awards, it does not change the retail classification status of the SMSF.
By understanding these regulations, financial advisers can better assist their SMSF clients and handle classification challenges intelligently, reinforcing transparency and trust in their advisory roles.
