SMSF Association calls for wholesale investor clarity in pre-budget submission

The SMSF Association has used a pre-budget submission to warn that legislative certainty on wholesale investor rules is “urgently needed” to ensure clarity around the provision of investment advice to SMSFs.

In its submission, the SMSF Association said that despite a number of reviews and inquiries over the last 15 years, there have been no outcomes and no changes to this area of law, and that one solution would be the registration of a legislative instrument by the government or ASIC to “provide interim relief and certainty” followed by further consultation on legislative amendments and/or targeted regulations to provide “long-term legislative certainty”.

The Australian Financial Complaints Authority has previously noted ongoing confusion regarding the classification of SMSFs as wholesale investments, with some advisers incorrectly applying the $2.5 million in net assets or $250,000 annual income threshold usually applied to establish a wholesale investor, rather than the specific $10 million threshold for superannuation products.

But the SMSF Association said that AFCA determinations – which it believes have a “law-making effect” due to the precedential nature of the decisions – are “contrary” to the industry’s understanding of how those provisions apply in the context of SMSFs and have further highlighted the legislative uncertainty, with wholesale advisers, product issuers and impacted SMSF trustees unsure as to how the tests apply to SMSFs.

“There are concerns about the impact this will have for investments and investors and where SMSFs who have been classed as wholesale will go for advice if they are suddenly classed as retail clients,” the association said in its submission.

“This will have implications for other investors if SMSFs are required to exit or divest certain investments. It may also impact the commercial viability of certain investments or projects.”

The SMSF Association said that legislative certainty was needed to ensure the application of the $2.5 million net asset test applies where trustees satisfy the test requirements; that the $10 million test applies to APRA regulated funds with more than six members; and that advice on SMSF investments does not constitute a dealing in a superannuation product.