Australian Financial Complaints Authority clarifies SMSFs are treated as retail clients unless fund assets exceed AUD 10 million

The Australian Financial Complaints Authority (AFCA) published guidance for financial advisers clarifying how self-managed super funds (SMSFs) are classified as wholesale or retail clients for the purposes of bringing complaints to AFCA. AFCA’s position is that advice provided to an SMSF trustee must be treated as retail client advice unless the SMSF itself has at least AUD 10 million in assets, which in turn affects whether and how AFCA will consider a complaint. AFCA pointed to the Corporations Act framework, including section 761G(6), which requires a superannuation product-related service to meet the AUD 10 million fund-assets test to be treated as wholesale, and noted that section 761G(7) (the general assets, income or investment threshold wholesale test) does not apply where the financial service relates to a superannuation product. As a result, SMSF trustees’ personal wealth or income outside the fund does not make the SMSF wholesale, and trustee sophistication does not change the legal classification even if it may be considered when determining compensation if a complaint is upheld; AFCA cited case 12-00-923475/12-00-108719 as an example where compensation was reduced for sophistication despite a finding that a wholesale classification was incorrect. The note also references ASIC’s August 2014 indication that it would not enforce the wholesale classification requirement, while highlighting that this does not remove legal risk, including the ability for consumers to pursue private action such as complaints to AFCA.