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
Sharing his reasoning in joining the FSC board, WT Financial chief executive, Keith Cullen, believes “product and advice cannot be separated” from each other in the current environment.
The Emerge Foundation, a charity run by financial advisers and fund managers, has announced a scholarship program to help veterans transition into tertiary education.
In an open letter, Sequoia chief executive Garry Crole has hit out against shareholders “with a personal axe to grind” as he fights for his job ahead of an EGM.
The JAWG has announced it is in talks with Treasury around five “core principles” to strengthen the education standards for new entrants to the financial advice space.
