SMSF Wholesale Investments
Your fund has outgrown listed equities and term deposits. What sits beyond them is largely closed to retail investors, and whether your fund can reach it turns on a test most trustees have never had explained properly.
Where most trustees are
The fund has done its job. The next decision is harder
You set the fund up to take control, and it worked. The balance is now large enough that a portfolio of Australian shares, some international exposure and cash is not obviously wrong, but it is not obviously enough either.
Concentration is usually the first thing that shows up. Four or five large positions, heavy in banks and resources, correlated to the same domestic cycle. Then the income question, because term deposit rates move and the fund's drawdown requirements do not.
Where your fund sits
Two tests apply, and which one depends on what you are buying
The threshold turns on what the fund is buying rather than what the fund is worth. Where the financial service relates to a superannuation product the threshold is $10 million. Where it does not, the general test applies.
So the same fund can be a retail client in one conversation and a wholesale client in the next. We establish which before anything is recommended, and we tell you plainly if it lands short.
A question that is not fully settled
ASIC withdrew its earlier guidance on SMSFs and the general test because the law is ambiguous. It has said it will not take action against providers relying on it, while noting that this does not affect private rights of action by third parties.
Worth knowing before you certify, not after.
What opens up
Four asset classes account for most of what wholesale status is worth
Private credit
Lending to businesses and projects outside the banking system, usually at floating rates with contractual income. Illiquid for the term, and the credit work is the whole job.
Structured notes
Participation, coupon, protection level and maturity all agreed before you invest. How structured products work.
Unlisted property
Direct and syndicated commercial property and infrastructure, valued on cashflow rather than daily sentiment. Long horizons, and exit timing is rarely yours to choose.
Wholesale trusts
Strategies offered under an Information Memorandum rather than a PDS, often with lower fees and minimums that assume institutional scale.
The other half of the trade
Access in exchange for protections, and the protections are real
Wholesale classification is usually sold as a door opening. It is also a set of protections being handed back, and for a fund paying pensions the liquidity point in particular has to be sized before anything is bought.
The dispute resolution point deserves the most thought and is the one most often skipped over.
What you give up
- DisclosureNo Product Disclosure Statement. An Information Memorandum instead, written on the assumption you can assess it yourself
- Dispute pathwaysSome external dispute resolution options narrow or fall away, depending on the product and the structure
- LiquidityMost of these assets cannot be sold when you want. For a fund paying pensions that is a constraint, not a preference
- CertaintyThe SMSF general test question is not fully settled
How we work with trustees
Classification first, then the strategy, then the reporting
Establish classification properly
We assess at fund level and at trustee level, because where the fund falls short the individual trustees often qualify personally. We would rather tell you the answer is no than have it unravel afterwards.
Build against the investment strategy
Your fund has a written investment strategy and it governs what we can do. Allocations are sized against it, against your liquidity and pension requirements, and against what the fund already holds.
Report so your accountant and auditor can use it
Consolidated reporting with the documentation your auditor will ask for. Quarterly reviews, and a record of why each position was sized the way it was.
The question trustees ask first
We work alongside your accountant, not instead of them
Almost nobody answers this on a website, so here it is plainly.
Your accountant handles the fund's compliance, its annual return, the audit and the tax position. That is their work and we do not take it over. We handle the investment side: what the fund holds, why, how it is sized and what it is exposed to.
The two jobs meet at classification, because the accountant is the one who signs the certificate, and at reporting, because they need records they can actually use. If you do not have an accountant you are happy with, we will say so rather than fill the gap ourselves.
Questions
Before you certify anything
My SMSF has $3 million. Is it a wholesale investor?
It depends on what the fund is buying. Where the financial service relates to a superannuation product the threshold is $10 million, so at $3 million the fund is a retail client for that purpose and an accountant's certificate does not change it. Where the service does not relate to a superannuation product, the general test of $2.5 million applies and the fund would meet it.
Can the trustees qualify personally if the fund does not?
Often, yes. We assess at fund level and at trustee level, because where the fund falls short the individual trustees frequently qualify in their own right. Which entity invests then becomes a structuring question for you and your accountant, and it needs to be consistent with the fund's investment strategy and deed.
How does illiquidity affect a fund paying pensions?
It is a hard constraint rather than a preference. Minimum pension payments have to be met each year regardless of what the portfolio is doing, so the illiquid allocation has to be sized around those payments with a margin. We size it before anything is bought rather than discovering the problem at the next payment date.
Who signs the accountant's certificate?
A qualified accountant, and it is valid for two years. We do not issue it and we cannot. Our part is establishing where the fund actually lands against each test so that your accountant is certifying something accurate.
Find out where your fund lands
A 30-minute conversation. We work through the classification tests against your fund's position and tell you plainly whether wholesale access is available to it, and whether it is worth having.
General information only. This page does not constitute financial, legal or tax advice and does not take your objectives, financial situation or needs into account. Speak with a licensed financial adviser and a qualified accountant before acting. Barker Wealth Management Pty Ltd ABN 46 695 875 962, trading as Barker Wealth, holds Australian Financial Services Licence (AFSL) 700297. Suite 913/185 Elizabeth Street, Sydney NSW 2000. (02) 8018 8998.