A guide to the differences and tips for your practice
Legislation that draws a distinction between wholesale and retail clients is aimed squarely at bolstering protection for retail clients in the financial advice process. At the same time, allowing clients to be classified as wholesale enables those with the skills, desire and experience to participate in wholesale markets, and invest in more complex products.
For advisers, the distinction is important, not only because the compliance obligations and advice process differs significantly between these two types of clients, but also because the investment opportunities and access to certain products also differ.
What is a wholesale client?
Essentially, everyone is a retail client unless they satisfy one of the requirements to be classified as a wholesale client under the Corporations Act 2001 Act (Corporations Act).
There are a few categories of wholesale clients under the Act. Here are a few of the most common ones:
- A person or entity that has obtained a qualified accountant’s certificate stating they have net assets of at least $2.5 million, or a gross income for each of the last two financial years of at least $250,000. The certificate lasts for two years before it needs to be renewed.
- A professional investor, which includes, among others, financial services licensees, bodies regulated by APRA, superannuation funds, as well as a person or entity who controls gross assets of at least $10 million (including any amount held by an associate or under a trust that the person manages).
What are the key differences?
The law is less prescriptive about the advice process for wholesale clients compared to retail clients, which means compliance obligations are greatly reduced.
- Retail clients must receive a Financial Services Guide (FSG), Statement of Advice (SOA) and where appropriate, a Product Disclosure Statement (PDS) from their adviser. Wholesale clients are not required to receive any of these documents.
- Retail clients enjoy all of the consumer protections set out in the Future of Financial Advice (FOFA) reforms. Wholesale clients generally do not.
- Wholesale clients have access to a wider range of investments and products compared to retail clients.