Compliance Professional Raises Alarm
A compliance expert has issued a stern warning to SMSF advisers who deal exclusively with wholesale investors. The advice: steer clear of the regulatory requirements designed for retail clients. This precautionary advice aims to protect advisers from unnecessary business risks associated with retail client compliance.
AFCA Membership Not Mandatory for Wholesale Advisers
During a recent industry event, Christina Kalantzis of Alexis Compliance and Risk highlighted a critical distinction for financial practitioners. She pointed out that advisers with a licence to service wholesale investors are not legally obligated to join the Australian Financial Complaints Authority (AFCA), a requirement for those operating in the retail sector.
Case Study: A Cautionary Tale
Kalantzis recounted a scenario where a client invested $1.2 million and later filed a complaint with AFCA. The adviser had classified the client as a wholesale investor, and consequently, did not adhere to the protective measures in place for retail investors—such as providing a statement of advice. This misclassification led to a significant compliance issue when AFCA did not agree with the client’s wholesale status.
The Risk of Inadequate Insurance Coverage
The oversight not only exposed the adviser to compliance risks but also revealed a gap in their insurance coverage. Without professional indemnity insurance that covers retail clients, the adviser could be personally responsible for any financial judgments against them, underscoring the gravity of correctly identifying client status.
Concerns Over AFCA’s Reach
The incident has sparked discussion within the industry, with some professionals suggesting that AFCA may be overstepping its jurisdiction. The implications of such cases are far-reaching, prompting advisers to reevaluate their compliance strategies and ensure they are adequately protected against such risks.