Journal

Posted October 3, 2023

Posted By Meghann Cannon

Review of the regulatory framework for managed investment schemes – response to consultation paper

We welcome the opportunity to respond to the issues paper published in August 2023.

Kit Legal is a specialist financial services law firm. We act for over 100 financial services firms around Australia, assisting them to comply with their regulatory obligations. Most of our clients are SMEs that hold their own AFSL.

We have only responded to the questions related to the wholesale client tests, because this is the issue of most importance to our client base.

In our direct experience, the current wholesale client tests are not being applied improperly to avoid obligations under the Corporations Act. In classifying a client as a wholesale client, the advisers we work with are responding to their client’s needs rather than pushing a wholesale client status onto the client.

Many clients want to have a more flexible and dynamic advice relationship with their adviser. Retail disclosure documents such as Statements of Advice are often not relevant or desired by these clients, nor can they access alternative investments more suited to their financial goals in the retail environment. Our wholesale fund manager clients are providing a key component to their investors’ diversified portfolios where the investment is specifically sought by the investor. They are not spruiking products or pressuring any investor to be classified as a wholesale client.

We see the approach of both our financial advisory and fund manager clients as acting within ethical parameters and in line with the overall spirit of the legislation, which intends to offer protections to those who need it and greater access and flexibility to those who don’t.

We appreciate that our experience of this issue does not represent the entirety of the wholesale funds sector. We don’t believe that legislative changes should be made just on anecdotal reports of what is occurring. Given the extent of significant upheaval that would occur across the wholesale funds industry if the wholesale client tests were changed, we think the first step should be to gather specific data on how many consumers have suffered loss due to being classified as wholesale clients and whether this loss would have been prevented if they had been treated as retail clients. We believe data is required to clearly understand ‘the problem’ before we work on ‘the solution’ given the very significant ramifications that will arise from changing the tests.

We welcome any queries on our submission and otherwise look forward to reading the final report.

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