Government releases options paper on review of retail/wholesale distinction

  • OIG
  • News
  • No Comments

7 February 2011 – The Australian Federal Government has released a consultation paper on the distinction between retail and wholesale clients in the Corporations Act 2001. This is timely and long overdue, given the increase in Financial Service providers looking to offer financial products aimed at high net worth or “sophisticated investors”.

Whilst the protection offered to mum and dad, “retail”, investors is constantly being enhanced (see below), wholesale clients do not receive the same level of disclosure and protection as they are considered to be better informed, and better able to assess the risks involved.

The consultation paper proposes various options for reform including:

  • Radically removing the distinction between retail and wholesale clients altogether, resulting in all investors receiving the same level of protection and disclosure;
  • Introducing a subjective “sophisticated investor” test which would allow financial services providers to determine whether the client is ‘sophisticated’ based on their financial literacy; and
  • Introducing various other changes, such as increasing income threshold amounts, additional requirements for complex products and potentially even removing the “sophisticated investor” concept altogether from section 761GA of the Corporations Act given the proposed increased wealth threshold test.