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Who Is a Retail Client for SoA Purposes?

  • Writer: Julia Vojkovic
    Julia Vojkovic
  • Jun 21
  • 3 min read

The SoA obligation applies only to personal advice given to a retail client. That makes the retail/wholesale distinction one of the most practically important classifications in financial advice. And unlike some areas of compliance, this one comes with a clear default: if in doubt, the client is retail.

Start with the default

Section 761G of the Corporations Act establishes the starting position: a person who acquires or disposes of a financial product is a retail client unless a specific exemption applies. Retail client status is the default. Wholesale status must be actively established.

If a client's wholesale status has not been documented before advice is given, treat them as retail.

The business use and value threshold exemption

A client is not a retail client where they are acquiring a financial product for use in connection with a business and the price or value of the product meets the prescribed regulatory threshold. Both conditions must apply:

  • The acquisition must be for use in connection with a business. Personal investment does not qualify, regardless of the amount.

  • The product value or price must meet or exceed the prescribed threshold at the time of the advice.

A high-net-worth individual investing personally is still a retail client under this test, even if the value of their investment is significant.

The sophisticated investor exemption (s761GA)

An individual can be treated as wholesale where a qualified accountant certifies, within the past two years, that the person meets either of the following:

  • Net assets of at least $2.5 million, or

  • Gross income of at least $250,000 per annum for each of the last two financial years.

In addition, the person must sign a statement acknowledging that they will not receive the protections available to retail clients.

Both the certificate and the signed acknowledgment must be in place before advice is given. Obtaining them afterwards does not satisfy the requirement. The accountant's certificate must also be current -- a certificate issued more than two years ago is expired.

Professional investors

Section 9 of the Corporations Act defines professional investors. This category includes:

  • AFS licensees.

  • Listed entities and their related bodies corporate.

  • Bodies regulated by APRA.

  • Trustees of superannuation funds with assets over $10 million.

  • Other entities specified in the section 9 definition.

Natural persons do not fall within the professional investor category unless they hold an AFS licence in their own right.

Documentation before advice -- not after

The client's classification must be established before the advice is given. Documenting it afterwards does not satisfy the requirement.

For sophisticated investor status, this means having both documents on file before the first advice interaction:

  • A current accountant's certificate dated within the past two years.

  • A signed wholesale client acknowledgment from the client.

For business-use exemptions, the file should record the basis for the exemption, including the nature of the client's business and the product being acquired.

What happens if the classification is wrong

Treating a retail client as wholesale removes the SoA requirement, the best interests duty and the appropriateness obligation. Where a client is misclassified and those protections were not provided:

  • The advice documentation will not comply with the Corporations Act.

  • ASIC can take regulatory action against the adviser and the licensee.

  • The client may be entitled to remediation.

  • The licensee may face conditions on or suspension of its AFS licence.

The risk of misclassification is highest where wholesale status is assumed based on the size of a client's portfolio rather than documented against the specific statutory criteria. Portfolio size alone does not establish wholesale client status.

Not sure if your SoAs are compliant?

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