An exemption in the Financial Advisers Act allows advisers with clients who are deemed to be “wholesale” investors to operate without having to become Authorised Financial Advisers (AFAs).

There are a number of different types of clients who are considered “wholesale” rather than retail under the Financial Advisers Act, including those with net assets of $2 million or more or annual gross income of $200,000 or more for each of the last two financial years.

There are also "eligible investors" who must certify they have “sufficient knowledge, skills or experience in financial matters to assess the value and risks of financial products and the merits of those services”.

Angus Dale-Jones of Knax Consulting said the Financial Markets Conduct Bill, which recently passed its second reading, had slightly tighter requirements around eligible investor status and some increased financial thresholds.

Dale-Jones said the distinction between wholesale and retail investors was a long-standing one that made sense in terms of improving ease of business for the financial industry, with the ever-present question being where the dividing line should be.

“The fundamental logic is that when you are dealing with skilled people, or who are skilled investors, from a regulatory point of view it might not be necessary to give them all the protection afforded to mum and dad investors,” he said.

“The problem arises when people distort that purpose and try to shoe-horn their clients under the wholesale banner.”

The changes to the wholesale definition and to the DIMS (Discretionary Investment Management Service) regime were proposed before Ross Asset Management hit the headlines.

Although David Ross was an AFA, Dale-Jones said the collapse of RAM would add to the debate over whether wealthy investors were more savvy, or required less protection, than other investors.

“With companies like RAM often a significant portion of their clients are wholesale investors,” he said.  “It’s a public policy issue; they might not necessarily want to be treated like retail investors.”