Wholesale investors should be excluded from CSLR
The fact that wholesale investors actively opt for that title and are required to undergo checks beforehand mean they should be excluded from the Compensation Scheme of Last Resort (CSLR), according to the Stockbrokers and Financial Advisers Association (SAFAA).
Appearing before the Senate Economics Legislation Committee, SAFAA chief executive, Judith Fox, said she did not believe wholesale investors should be included in the scheme.
This was because they had actively taken steps to be classified in that sector so could be classed as financially literate and, secondly, would be able to afford any court fees arising in the event of misconduct.
To be classified as a wholesale investor, an investor would usually be investing at least $500,000 or have a gross income for the last two financial years of $250,000 or gross assets of at least $10 million.
Fox said: “Our view is that investors elect to become a wholesale investor, it is not an automatic process, no one can put them in that category without their consent, they have to get a certificate from an accountant.
“So we see that people are actively choosing to be wholesale investors and that comes with risks they take on.
“We don’t think that the scheme should extend to wholesale investors. They have the financial resources to be able to take matters through the court.”
She said firms usually undertook their own checks and risk matrices to ensure the person had the adequate investing experience, education and understanding of markets to meet the wholesale investor description.
She also added the Treasury review into the Australian Financial Complaints Authority had also noted the system was being “gamed” by wholesale investors.
“[Treasury] made it clear they think AFCA should be more careful in exercising its discretion to take complaints from wholesale investors because the system was being gamed, to some extent, by people who had financial resources to take matters through the court but could see they could use this free system. So extending the CSLR, we think, is not a wise idea.”
AUTHOR
Laura Dew
Recommended for you
Two law firms have highlighted licensees’ responsibility to ensure they have sufficient cyber security measures in light of the enforcement action against Fortnum Private Wealth.
A former director has pleaded guilty to providing financial product advice without holding an AFSL which saw almost $2 million transferred to him.
Commonwealth Private Limited, a subsidiary of Commonwealth Bank of Australia, has launched a wholesale offering with the help of JPMAM.
Shaw and Partners’ new national head of private wealth believes the biggest challenge for financial advisers right now is being able to deliver efficient advice delivery amid a complex regulatory environment and growing investment universe.
