Industry defies ALRC’s retail client definition proposals
The industry has disagreed with proposals from the Australian Law Reform Commission (ALRC) regarding retail and wholesale clients, arguing the asset and income test exemptions are outdated and require indexation.
In a webinar outlining feedback to its financial advice legislation inquiry, it discussed feedback it had received about the terms ‘retail’ and ‘wholesale’ client.
In its original proposals in Interim Report A, the ALRC asked whether the definition of ‘retail client’ be amended to remove sub-sections regarding certain financial products or to remove the asset and income exceptions. It then asked what conditions should be applied to the sophisticated investor exception.
Dr William Isdale, senior legal officer, said: “The ALRC received a great deal of support for some amendments in this area but not for the specific proposals we had outlined. In particular, stakeholders suggested the existing product value and asset test income exemption were grossly out of date.
“This is because monetary thresholds specified [in the Corporations Act 2001] have not been updated to take account of rising asset values and inflation.
“For example, there has been a 1,000% increase in the estimated number of households that meet the asset and income exceptions, so that the exceptions appear to have become arbitrary, outdated and inconsistent with underlying policies.”
Instead, the industry had made its own suggestions included a simplification or alignment of the concepts of retail client and consumer across Federal legislation. Indexation would ensure threshold amounts for product value and asset income exemptions remained up to date. The scope of assets should also be limited to investable assets and exclude the person’s place of residence.
Regarding the sophisticated investor exception, stakeholders felt it was “incredibly subjective” in its current form.
Dr Isdale said: “[Law firm] Minter Ellison suggested the option of enabling clients to obtain a wholesale qualification by undertaking some sort of course of financial education. It was also proposed in some circumstances, people would self-certify as wholesale. The Advisers’ Association favoured a combination of both subjective and objective test to determine whether someone would satisfy the sophisticated investor exemption”.
AUTHOR
Laura Dew
Recommended for you
With an advice M&A deal taking around six months to enact, two experts have shared their tips on how buyers and sellers can avoid “deal fatigue” and prevent potential deals from collapsing.
Several financial advisers have been shortlisted in the ninth annual Women in Finance Awards 2025, to be held on 14 November.
Digital advice tools are on the rise, but licensees will need to ensure they still meet adviser obligations or potentially risk a class action if clients lose money from a rogue algorithm.
Shaw and Partners has merged with Sydney wealth manager Kennedy Partners Wealth, while Ord Minnett has hired a private wealth adviser from Morgan Stanley.
