ASIC examining wholesale/retail client definitions

11 March 2020

The Australian Securities and Investments Commission (ASIC) has confirmed it is continuing to examine the misclassification of wholesale and retail clients.

ASIC chair, James Shipton has confirmed to a Parliamentary committee that the regulator is looking at the issue but stopped short of suggesting that there was systemic misclassification of wholesale and retail clients.

However, he said that at the very least ASIC was concerned about potential misclassifications in circumstances where the ‘wholesale investor’ definition was a broad one.

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“There are many different facets to it,” Shipton said. “There may be misclassification in a general sense, which may be different from a legal sense, because technically it may fall within the definition of a 'wholesale client'.”

“What we're looking out for, I sense is probably best expressed as an overly technical application of a person as a wholesale client that may not be in the greater scheme of things in their best interest. This is something we're actively monitoring,” the ASIC chair said.




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"Misclassification" of clients as wholesale is just one symptom of a much broader issue.

When one segment of a market becomes chronically over regulated, while other segments of that same market remain untouched, there will always be a shift away from the over regulated segment. The original regulatory intent of protecting consumers becomes self defeating if that regulation is badly designed. It effectively pushes consumers into far more dangerous options.

It is why we are seeing financial advice consumers increasingly drawn to dodgy online promoters, and poor quality unlicensed advice from accountants, mortgage brokers, and property spruikers.

Defenders of regulatory change claim that consumers will be drawn to the more highly regulated segment, due to the additional safety it provides. That would be true if regulatory change was efficient, practical, and cost effective. But when it involves unnecessarily complex bureaucracy, and huge additional costs that must ultimately be passed on to consumers, most consumers turn away from it. The ASIC/O'Dwyer/Hayne/Frydenberg approach to financial advice regulation is ultimately doing consumers more harm than good.

Recently I discussed a scenario with a group of Advisers who said they are not going to do the FASEA exam and only deal with wholesale clients in the future. Now, given they will be removed from the FAR on 1.1.21 (or a year later if the date is extended), I don't understand how this is possible when they are no longer licensed by ASIC as a Relevant Provider AFTER the final date for completion of the exam. If you have a view on this let me know as this seems quite strange to me.

Compliance is a nightmare. Annual opt ins, reviews when regulations dictates (rather than the situation of the client), demonstrating informed consent, product authorities etc the list goes on.
Clients very well aware what they pay me and you I suspect (unless you are a product provider) so, why not step aside. Terminate all fees from product. Charge a client from their cash account not from product. No issues. Put the Financial Planner hate on only when a product recommendation is required (end of year contributions etc covered in in initial soa) and get back to "service" for clients. Large client make wholesale.

Here is another angle to consider. The vast majority of Long Volatility funds are not available to retail investors. Is this reasonable?

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