Extra costs likely if wholesale test amendments go ahead: SAFAA
Reclassifying clients who previously qualified as wholesale clients will be detrimental in a time of declining adviser numbers, according to the Stockbrokers and Financial Advisers Association (SAFAA).
In a discussion paper ‘Does the wholesale investor test need to change’, the association said there were many firms who had adopted a business model of solely servicing wholesale clients and would be negatively impacted if these clients were instead classed as retail investors.
“With business models relying on the definitions in structuring their businesses to meet client demand, change will bring disruption and attendant costs associated with implementing change”, the report stated.
“Licensees have aligned their business models to the current regulatory framework, including the wholesale client definitions. Advisers who have adopted a wholesale client-only business model are not required to have satisfied the educational and exam requirements that allow them to provide advice to retail clients.
“They would therefore find themselves treated as new entrants, subject to not only to the education and exam requirements but also the Professional Year requirements and without a livelihood.”
Similarly, they would be unable to provide advice to their former clients who were now ‘retail’ clients which would deprive those investors of access to an adviser they may have built a long relationship with.
“One outcome of the combination of a change in the wholesale client definition and the significant decline in the number of retail client advisers would be that reclassified clients would lose access to personal advice. At a time when the government, regulators and the financial advice industry concur that access to financial advice is now more difficult and there is a need to work together to improve access, cutting a cohort of clients adrift would be counter-productive.”
Finally, the pool of potential clients for those who remained offering advice to wholesale clients would also decline which “may exacerbate the decline in availability and affordability of financial advice”, particularly given the high numbers of advisers exiting the industry.
AUTHOR
Laura Dew
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