SMSFs more at risk as wholesale investors

The recent Australian Securities and Investments Commission (ASIC) announcement signalling its intention to make it easier for SMSF trustees to invest in wholesale financial products will lessen some of the safeguards applicable when these individuals were categorised strictly as retail investors, a specialist law firm has said.

“It is somewhat curious that at the same time as ‘vested interests’ proclaim that SMSFs are investing in dangerous products and should have their activities curtailed, which translates as only being able to invest with those same vested interests, ASIC is choosing to give SMSFs access to wholesale investments which don’t necessarily have the same suite of protections as there might be for retail investments,” Townsends principal Peter Townsend said.

“But that is exactly what is happening.”

To illustrate the point, the law firm highlighted the fact a financial planner did not have to provide a financial services guide or statement of advice if the individual receiving the advice was not considered a retail client.

Furthermore, non-retail clients could be offered financial products that did not require prospectus-like disclosure.

Until now ASIC had held the view SMSF members were retail investors unless they had net assets in excess of $10 million.

However, the regulator has relaxed its view, allowing SMSF members to be considered wholesale investors if they complied with the standard eligibility tests outlined in the Corporations Act.

Under the Corporations Act, an individual is eligible to invest in wholesale financial products if they satisfy certain conditions.

Firstly, they can meet one of six tests outlined in section 761G(7), or alternatively they can satisfy all of the tests detailed in section 761GA.

In light of ASIC’s change of stance on the subject, Townsends recommended all SMSF trustees ensured the fund’s investment strategy allowed for the purchase of those products.


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