SMSF Association Media Release
There is an urgent need for the Government to prioritise legislative amendments to clarify the operation of wholesale investor rules for SMSFs in the wake of recent determinations by the Australian Financial Complaints Authority (AFCA).
SMSF Association Head of Policy & Advocacy Tracey Scotchbrook, in her address to the National Conference titled Advice, Practice & Regulatory: Shaping the future of the SMSF Industry, said the AFCA determinations had created “significant uncertainty” across the industry – especially for advisers and product providers.
“While the 2001 legislation that defined the wholesale investor test was poorly designed there was a broad industry consensus that a $2.5 million asset test and an investment of $500,000 in a financial product, set the wholesale parameters for investments acquired by SMSF trustees.
“But the recent AFCA determinations have cast a black cloud over this consensus, creating a situation where a $10 million asset test could be the new benchmark for a consumer to claim wholesale status. This now opens the door for potential compensation via the AFCA – for a poor investment decision.
“In this regulatory environment, there will be genuine risks for advisers with SMSFs who have been classified as wholesale under the $2.5 million asset test but are now potentially vulnerable to a $10 million threshold.”
Scotchbrook told delegates that it just won’t be advisers and product providers who would be affected.
“There will be SMSFs who will no longer be able to access a product because they won’t be classified as wholesale investors. Funds who were previously investing as wholesale clients may now need to be reclassified as retail clients. They will need to be advised by a licensed financial adviser at the very time when the industry is suffering a chronic shortage of advisers. It all adds up to a cacophony of problems.”
She said the Association had used its 2025-26 Pre-Budget submission to highlight the pressing need for legislative certainty to ensure advisers could continue to operate with confidence when advising wholesale clients.
“Trustees, financial advisers, and product issuers are now faced with uncertainty on how to apply the wholesale investor tests, raising serious concerns about the implications for investment decisions and access to wholesale financial products.”
“Without immediate intervention, the uncertainty could disrupt existing investment strategies, force SMSFs to divest from wholesale products, and create adverse consequences for broader capital markets.
“These long-standing issues have been ignored for too long, and AFCA’s recent determinations have now brought them to a head. The Government must act swiftly to preserve investment choice for SMSFs and ensure that the wholesale investor framework operates as originally intended.”
In her wide-ranging review of long-term industry trends, Scotchbrook told delegates that the accounting and financial advice professions had a critical role to play in the identification and reporting of financial abuse.
“A comprehensive Parliamentary Joint Committee inquiry in 2024 shone a light on the significant harm caused by domestic abuse via coercive control and financial abuse, and how perpetrators exploited loopholes in the laws and systems to engage in this nefarious activity.
“In this respect, the advantages of an SMSF structure that are so effective when used legally and ethically can be exploited by perpetrators – a point the parliamentary committee highlighted. SMSF professionals must be alert to these issues and to identify and report this abuse.”
She said the committee also recommended reviews of the superannuation system and the professional and ethical obligations as they related to financial abuse. “While a review is welcomed, practitioners need to be aware of their existing duties and obligations under the law and through their respective codes of ethics and conduct,” she said.