As a result of the significant changes occurring in Australia’s financial services industry, you may have found yourself without a financial adviser, or being pressured by your financial advice institution to reclassify as a significant or wholesale investor. Let us explain the changes to the financial advice industry and how they may impact your investment activities.
Why are these changes occurring in the industry?
Following the Royal Commission, Misconduct in the Banking, Superannuation and Financial Services industry, many positive recommendations were made to make the financial services sector stronger. However, many large institutions have struggled, or are struggling, to meet the updated requirements.
This has led to a mass exodus of financial advisers from the industry. Because of the increased liability retail client advisers, many institutions have decided to cut their financial advice services altogether, while others are attempting to re-classify their retails investors to sophisticated or wholesale investors to reduce the institution’s exposure to risk.
What does it mean to be reclassified as a significant or wholesale investor?
Most individuals will be classified as retail investors, which provides greater protection to you as an individual and shifts the liability onto your adviser. Retail investors are afforded greater protections as they typically possess a lower level of financial literacy.
A sophisticated or wholesale investor may forfeit several legal protections and rights that are held by retail investors. Sophisticated/wholesale investors have greater liability for their investment actions, rather than their adviser, which is why many institutions are pushing for the reclassification.
It is important to be aware that by reclassifying as a wholesale or sophisticated investor, you are effectively signing away their rights to disclosure obligations (risk warnings), as well as the right to any resources (should something go wrong). Before allowing an institution to reclassify your investor status, it is important to seek a second option to ensure this is the appropriate course of action for your individual circumstances.
How can BDO help?
BDO’s Private Wealth team provides advice to all clients under the protections provided to retail investors, while still having access to a diverse range of high-quality investment opportunities. Our portfolios are well researched and highly diversified, with exposures to international markets and defensive fixed interest. This approach has helped our clients weather periods of uncertainty and emerge in a strong position.
If you have lost your financial adviser, or are concerned about being reclassified as a sophisticated or wholesale investor, contact a BDO Private Wealth Adviser today to discuss your options.
This publication has been carefully prepared, but it has been written in general terms and should be seen as broad guidance only. The publication cannot be relied upon to cover specific situations and you should not act, or refrain from acting, upon the information contained therein without obtaining specific professional advice. Please contact the BDO member firms in Australia to discuss these matters in the context of your particular circumstances. BDO Australia Ltd and each BDO member firm in Australia, their partners and/or directors, employees and agents do not accept or assume any liability or duty of care for any loss arising from any action taken or not taken by anyone in reliance on the information in this publication or for any decision based on it.
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