The Parliamentary Joint Committee on Corporations and Financial Services (Committee) has released its report into the wholesale investor test for offers of securities and the wholesale client test for financial products and services under the Corporations Act.  The current tests are $250,000 income or $2.5 million in net assets.  

The Committee did not support submissions to increase the financial thresholds in these tests and instead recommended the implementation of a mechanism of review.  

The Committee received a substantial number of submissions including one from ASIC lobbying for an increase in the financial thresholds due to the increase in the general value of assets and incomes of Australians over time. ASIC noted that significantly more Australians can qualify as wholesale investors or clients today compared to when the tests were fist introduced.   

The Committee was not persuaded by these submissions and noted that while inflation may have increased the potential pool of wholesale investors and clients over time, there was no evidence to suggest there had been a resultant increase in systemic harm or in the number of wholesale investors that were vulnerable and unqualified to participate in wholesale markets.  

The Committee also noted that raising the thresholds would increase the risk to investors by reducing their ability to diversify investments and would be disruptive to established funds and investors, to the extent current wholesale investors and clients were reclassified as retail.  

Sophisticated Investor Test 

The Committee noted inquiry participants concerns about the subjectivity of the sophisticated investor test.  It was noted that the subjective character of the test increases the potential for conflicts of interest, and as noted by ASIC, could be abused by AFS licensees, particularly in relation to complex or novel product offerings.  

Recommendations to Government 

1. That it consider establishing a mechanism for periodic review of the tests. 
2. That after consultation it should remove the subjective elements of the sophisticated investor test and introduce objective criteria relating to the knowledge and experience of the investor.   

Feb 2025