A person is either a wholesale client or a retail client in relation to a particular financial product or service. However, the distinction is complicated and a person can be both type of client at the same time in relation to different products and services.
Eligibility to be a wholesale client is determined by meeting one of the 5 eligibility tests:
- Product value – of over $500,000
- Individual wealth – measured in terms of gross income or net assets as certified by an accountant’s certificate
- Professional investors – mostly institutional investors and investment managers
- Large businesses – as measured by number of employees
- Sophisticated investor – as determined by an AFSL holder based on the client’s investment experience.
Again, the criteria applying to each test is complicated and not all tests can be used in all situations. Applying the tests to entities such as trusts (and particularly SMSFs) can also raise difficulties.
Simply meeting an eligibility test might also not be sufficient as regulators are increasingly taking the view that classifying clients with low levels of financial literacy as wholesale might result in a breach of other regulatory obligations (such as those relating to acting fairly).
How we can help
Our team of experts have extensive experience in this area:
- provide legal advice in relation to the application of the eligibility tests
- provide legal advice in relation to the effect of wholesale client status on your conduct and disclosure obligations
- provide legal advice in relation to product design for wholesale products
- prepare documentation for assessing wholesale client eligibility (such as application forms and sophisticated investor letters)
- assist with AFSL applications for wholesale only businesses