Wholesale Client

Wholesale Client is the Chapter 7 counterpart to the sophisticated investor test. Under section 761G of the Corporations Act 2001 (Cth), a person can be treated as a wholesale client where a qualified accountant certifies net assets of at least $2.5 million, or gross income of at least $250,000 for each of the last two financial years. Those figures are prescribed by regulation 7.1.28.

Why It Matters

This is the test that matters for financial products and financial services, including interests in a managed investment scheme, which is what most pooled and contributory mortgage funds are. Classification as a wholesale client removes the obligation to provide a Product Disclosure Statement, a Statement of Advice, and access to some dispute resolution and compensation arrangements. Getting the classification wrong is a licensing and conduct problem, not a paperwork problem.

How It Works

The dollar thresholds are identical to the Chapter 6D sophisticated investor test. The tests are still separate: Chapter 6D governs offers of securities, Chapter 7 governs financial products and financial services.
Chapter 7 carries a condition that Chapter 6D does not. Where the accountant certificate route is used, the financial product or service must not be for use in connection with a business. A certificate alone is not enough: the person relying on it must also satisfy themselves on this point.
The two year certificate validity applies here as well. The modification is made through the regulations rather than by rewriting the section, and its application across Chapter 7 is set out Part by Part rather than as a single blanket change.
Other routes into wholesale client status exist and do not require a certificate, including the $500,000 product value test, the professional investor category, and the business size test.

Common Use Cases

Investors subscribing for units in a wholesale mortgage fund
Offers made under an information memorandum instead of a PDS
Unregistered schemes available only to wholesale clients
Determining whether retail client conduct obligations apply to a financial service

Related Switchboard Resources

For ASIC guidance, see asic.gov.au.

Is a wholesale client the same as a sophisticated investor?

No. They are separate tests in separate Chapters of the Corporations Act. The sophisticated investor test in section 708(8) applies to offers of securities under Chapter 6D. The wholesale client test in section 761G applies to financial products and services under Chapter 7. They share the same dollar thresholds, which is exactly why the two are so often confused, but they are not interchangeable and a certificate should state which Chapter or Chapters it is issued under.

What is the business use condition?

Where the accountant certificate route is relied on under Chapter 7, the financial product or service must not be for use in connection with a business. This condition has no equivalent in the Chapter 6D sophisticated investor test. The provider must form its own view on this, not simply rely on the certificate.

Do I need a certificate to be a wholesale client?

Not always. The certificate route is one pathway. A person can also be a wholesale client through the $500,000 product value test, by falling within the professional investor definition, or through the business size test, none of which require an accountant certificate.

General information only. This page explains a term used in Australian financial services law. It is general information, not legal or financial product advice, and does not take account of your objectives, financial situation or needs. Definitions and thresholds change. Confirm the current position on the Federal Register of Legislation or with a qualified professional before relying on it.