Australia’s wholesale client framework increasingly risks confusing wealth with capability. A person can meet a financial threshold without having the experience, liquidity or understanding that wholesale status effectively assumes.
If you’re compiling a list of overdue financial services reforms, the wholesale client definition should be near the top.
The issue isn’t wholesale investing itself. The problem is that one part of the framework increasingly allows people who look and behave like ordinary retail investors to lose consumer protections based solely on wealth.
The wholesale client classification under s 761G of the Corporations Act 2001 contains several pathways, large-value investments, business use, high-net-worth individuals and professional investors. Those categories serve different purposes and aren’t interchangeable. A professional investor, a large business, an institutional participant, and a retired homeowner with valuable property aren’t the same type of client.
A modified version of this article was published by Money Management as “Wholesale investor test blurring ‘financial capacity with capability’
The problem with Australia’s wholesale client test
Our concern is primarily the high-net-worth test in s 761G(7)(c). Essentially, this pathway allows a person to be treated as a wholesale client for relevant financial products or services where a qualified accountant certifies that they have net assets of at least $2.5 million or gross income of at least $250,000 in each of the previous two financial years.
Unfortunately, those thresholds haven’t kept pace with changes in wages, property values, wealth or retirement savings. ASIC has noted that, if adjusted for CPI from 2001 to 2024, the asset threshold would be about $4.61 million and the income threshold about $461,000.
But simply lifting and periodically reviewing the thresholds won’t solve the underlying problem.
The problem is that income and assets are being used as proxies for experience, bargaining power, financial literacy, risk tolerance, capacity to absorb losses and the ability to understand and challenge complex financial arrangements. In reality, those characteristics don’t automatically correlate with income or accumulated wealth.
Wealth isn’t the same as financial capability
A person can satisfy the asset test because they bought a home decades ago, inherited property or accumulated superannuation over a lifetime. None of those circumstances establishes that they understand complex financial products, can identify conflicts, compare fees, assess downside risk or withstand a major investment loss.
That distinction matters, particularly for retirees.
An older Australian may own a valuable home and have substantial superannuation while still having modest income and little capacity to rebuild capital after a loss. Accumulated wealth can make someone more attractive as an investment client without making them any more capable of protecting their own interests than a retail client.
The high-net-worth test can confuse financial capacity on paper with financial capability in practice. Those are separate questions. The accountant’s certificate establishes satisfaction of a prescribed financial threshold; it doesn’t certify investment knowledge, experience, financial literacy, liquidity or capacity to withstand loss.
It also assumes that wealth gives people ready access to the professional resources needed to protect themselves. That assumption isn’t reasonable. A person with $2.5 million in net assets may have much of that wealth tied up in a home or superannuation and still be poorly placed to fund specialist financial advice, legal representation, expert evidence or litigation when something goes wrong.
The result can be a double disadvantage: a client loses retail protections because the law assumes they can look after themselves, yet they lack the liquidity, experience or resources needed to challenge misconduct effectively.
First, owning assets isn’t the same as having the ability to fund advice, absorb loss or enforce rights against a well-resourced product issuer or licensee.
Second, where retirement savings contribute to a person’s broader net asset position, assets accumulated for retirement can effectively help move that person outside the retail protection framework. That creates an uncomfortable policy tension. A resource intended to provide security and income in retirement shouldn’t, without more, become evidence that its owner is capable of navigating sophisticated investments without ordinary consumer protections.
“Where this becomes a practical issue”
A client may warrant closer attention where their wholesale status depends principally on appreciating residential property, accumulated superannuation or historic income, rather than demonstrated experience with the type of investment or service being considered.
What do clients lose when they’re classified as wholesale?
The consequences of wholesale classification aren’t theoretical. Retail clients receive important protections under Chapter 7 of the Corporations Act, including protections relating to disclosure, advice and dispute resolution. In wholesale contexts, those protections and requirements may no longer apply in the same way. That creates a particular problem where a client meets the financial threshold but lacks the sophistication the wholesale classification effectively assumes. If the client receives less information and lacks the experience or understanding needed to fill that gap, it’s difficult to see how their decision can be meaningfully informed. In practice, they may be assuming wholesale risk without either wholesale capability or a proper understanding of what they’re giving up.
That approach may be defensible where the investor is genuinely sophisticated, but it’s much harder to justify where wholesale status rests principally on the value of a house, accumulated superannuation or a salary threshold set decades ago. The law shouldn’t allow consumer protections to be removed through a mechanical process that fails to examine whether the person is, in substance, capable of operating without those statutory protections.
Should the wholesale client thresholds simply be increased?
It’s important to acknowledge the counterargument. The Parliamentary Joint Committee wasn’t persuaded that the evidence before it established significant or systemic investor harm caused by the current financial thresholds themselves. That finding deserves weight. But absence of demonstrated systemic harm isn’t the same as evidence that the thresholds remain appropriately calibrated or that wealth is a reliable proxy for capability. ASIC reached a different policy conclusion, recommending that the thresholds be increased for inflation and periodically adjusted because this would better ensure that investors who are, in substance, retail clients receive retail protections.
None of this means the wholesale regime should be abolished.
Many high-net-worth investors are experienced, commercially sophisticated and well advised. Wholesale markets are important to capital raising, stockbroking, private markets and financial product distribution. Reform should preserve efficient access for investors genuinely capable of operating without the full retail protection framework.
Why the sophisticated investor test isn’t solving the problem
There’s also an odd inconsistency within the existing regime. A client classified as sophisticated under s 761GA must have relevant experience, receive the licensee’s reasons for that assessment and expressly acknowledge in writing that retail disclosure and other protections will not apply. The high-net-worth pathway in s 761G(7)(c) contains no equivalent assessment of financial capability. Wealth can therefore achieve, through a relatively mechanical process, what the sophistication test requires the licensee and client to confront expressly.
However, the statutory alternative designed to assess capability is practically unworkable. The Parliamentary Joint Committee concluded that the sophisticated investor test’s subjective character discourages AFS licensees from relying on it because they may face liability if the classification is later found to have been wrongly made. Evidence before the Committee also identified the prospect of legal challenge or AFCA dispute where a classification is contested. That makes the accountant’s certificate a comparatively more certain and defensible route.
How should Australia reform the wholesale client test?
In our view, a three-part solution is needed.
First, the income and asset thresholds in regulation 7.1.28 need to be increased and indexed so they don’t again become progressively detached from economic reality.
Second, the existing sophistication pathway should be strengthened with clearer, more objective criteria for determining whether a client genuinely has the knowledge and experience to operate without the full retail protection framework. That pathway should rely on objectively verifiable indicators of knowledge and experience, such as relevant qualifications or professional experience, demonstrated investment experience and previous dealings in comparable products or other prescribed criteria. The legislation should provide a clear safe harbour so that a licensee acting reasonably on verified evidence and prescribed criteria can rely on the classification.
Third, where wholesale status rests solely on financial means rather than demonstrated sophistication, the client should be required to make an informed and explicit acknowledgement of the retail consumer protections they will no longer receive.
That approach would also broadly accord with the Parliamentary Joint Committee’s 2025 recommendation that the subjective elements of the sophisticated investor test be replaced with objective criteria relating to investor knowledge and experience. The distinction also matters operationally. Any objective sophistication test would need criteria capable of consistent verification, documentation and review. Otherwise, reform risks replacing one uncertain judgement with another.
A properly defined sophistication pathway could also make higher financial thresholds more acceptable to industry. Experienced investors who don’t satisfy the financial thresholds would retain a workable route to wholesale status, while higher thresholds would reduce the number of ordinary investors classified as wholesale solely because of accumulated wealth.
The Government’s 2026 response was considerably less ambitious. It noted both recommendations, declined to establish a dedicated periodic review mechanism and did not commit to the PJC’s proposed amendments to the sophisticated investor test. Treasury will instead continue monitoring the operation of the tests and consumer outcomes. In the meantime, the thresholds remain unchanged.
We believe that higher and indexed thresholds would reduce the number of ordinary investors captured by an outdated wealth test. A properly defined and objectively verifiable sophistication pathway would give genuinely experienced investors a workable alternative, without forcing licensees to make subjective judgments they are understandably reluctant to defend after the event.
The objective of reform shouldn’t be to exclude capable investors. It should be to stop treating wealth as conclusive evidence that a person can safely operate without statutory retail protections.
After reviewing more than 24,614 client files, one lesson is particularly clear: procedural compliance and substantive understanding aren’t necessarily the same thing. A completed process can establish that prescribed steps occurred without establishing that the client understood their consequences. That distinction matters when the consequence is the removal of statutory retail protections.
In reality, a person can be wealthy and financially unsophisticated. They can hold substantial assets while remaining vulnerable to complexity, poor disclosure, pressure or misplaced trust. Meeting a financial threshold doesn’t necessarily mean they no longer need the protections the retail regime was designed to provide.
Australia’s high-net-worth wholesale client test needs to be modernised as part of a better framework, one that distinguishes between wealth, experience and vulnerability, rather than assuming one proves the others. The classification mechanism should be refined to more closely correspond with the characteristics it’s supposed to represent.
Wealth is relevant, but wholesale classification shouldn’t provide a mechanical shortcut out of retail protections where wealth tells us little about the client’s actual understanding or capability. It certainly shouldn’t be assumed to prove either.
Need to test whether your wholesale-client classification process works as well in practice as it does on paper? Assured Support can review the evidence, controls and file practices supporting your approach.
Further reading
Frequently Asked Questions
No. The high-net-worth pathway under s 761G(7)(c) is a financial threshold test, not an assessment of investment knowledge, experience or financial literacy. Regulation 7.1.28 currently specifies net assets of $2.5 million or gross income of $250,000 in each of the previous two financial years.
That distinction matters because the source of someone’s wealth may tell you relatively little about their ability to assess a particular investment. Residential property appreciation, accumulated superannuation, inheritance and investment experience are fundamentally different things.
For licensees and advisers, the practical lesson is not to treat an accountant’s certificate as evidence of sophistication it does not purport to establish. Where capability matters to the client outcome, the file should separately capture relevant experience, understanding, liquidity, risk exposure and the client’s ability to appreciate the consequences of being treated as wholesale.
Because classification affects the regulatory protections and obligations applying to the particular financial product or service. A person does not retain every protection associated with retail status simply because the provider remains an AFS licensee.
That makes classification more than an administrative onboarding exercise. Before relying on wholesale status, a licensee should identify which test applies, what evidence establishes it, what products or services the classification covers, and what consequences follow.
This is particularly important where the classification rests on s 761G(7)(c). The accountant’s certificate establishes satisfaction of the prescribed financial criterion; it does not itself establish that the client understands the regulatory consequences of wholesale treatment.
A defensible process should therefore distinguish evidence of legal classification from evidence of client understanding. They answer different questions.
The evidence should demonstrate the particular statutory pathway relied upon rather than merely record “wholesale” as a client attribute.
For the high-net-worth pathway, that means retaining the required accountant’s certificate and evidence supporting its proper use in the relevant circumstances. For a sophisticated-investor assessment under s 761GA, the process is materially different: the licensee must be satisfied on reasonable grounds about relevant prior experience and comply with the associated written requirements. ASIC itself distinguishes these pathways.
Good governance should go further than collecting documents. A licensee should be able to reconstruct who made the classification, which test was used, what evidence was considered, when it was assessed, what products or services it applied to and whether anything subsequently called the classification into question.
That turns classification from a checkbox into an auditable decision.
Start by separating the client’s statutory eligibility from their actual financial circumstances and capability. A retiree can satisfy a wealth threshold while having limited liquidity, limited investment experience and little capacity to rebuild capital following a substantial loss.
That doesn’t invalidate an otherwise lawful wholesale classification. It does mean the threshold should not be allowed to answer questions it was never designed to answer.
An adviser should examine where the client’s wealth sits, their income and liquidity, previous experience with comparable investments, understanding of downside scenarios and ability to tolerate permanent capital loss. The file should also make clear whether the client understands the practical consequences of wholesale treatment.
This is especially valuable where residential property or retirement savings account for a substantial proportion of the assets supporting the classification.
Yes, but only if it records and tests the reasoning rather than simply storing a certificate. Technology can strengthen control operation by recording the classification pathway, evidence, dates, responsible person, acknowledgements, review triggers and exceptions.
It can’t decide whether wealth is an adequate proxy for sophistication or replace professional judgement where the legislation requires one.
A useful system should therefore distinguish eligibility evidence from capability evidence. It could flag expiring evidence, inconsistent classifications, missing acknowledgements or cases where different parts of the business have treated the same client differently.
The governance benefit is traceability. A licensee should be able to demonstrate not merely that a document exists, but why the client was classified as wholesale and what evidence supported that decision at the relevant time.
