Retail and Wholesale Clients: How Do They Differ?
Don't understand the difference between a retail and wholesale client? In this article we break down the difference between them, and why it matters.
Struggling to learn the difference between a retail and wholesale client? Unsure why it matters? There are many differences between them, as regulated by the Corporations Act 2001 (Cth). Our article explains the differences, and why they matter.
What’s a retail client?
Anyone who’s not a wholesale client, is a retail client. Additionally, anyone seeking home, motor vehicle, personal or travel insurance is a retail client. Anyone seeking superannuation advice is also retail, unless the fund has greater than $10, 000, 000 net assets.
What’s a wholesale client?
A wholesale client is someone who meets one of the following tests. These are for products not listed above.
Products value test
The products value test applies for any client investing more than $500, 000 in one business.
Small business test
A small business can’t be a wholesale client, as they are retail. Any business that meets either of the following criteria is a large business. Therefore, they’re a wholesale client;
- Assets test – net assets over $2, 500, 000.
- Income test – a gross annual income over $250, 000 in the last two financial years.
A retail client is a business that fails to satisfy either test. Additionally, the company must have more than;
- 100 employees – for businesses that manufacture goods.
- 20 employees – for other businesses.
If a business has less employees than listed above, they are a small business. Thus, a retail client.
Professional investors test
Any person who’s a professional investor, is a wholesale client. A professional investor is anyone who;
- Is an financial services licensee.
- May be a body regulated by the Australian Prudential Regulation Authority.
- Is registered as a body under the Financial Corporations Act 1974 (Cth).
- Has net assets greater than $10, 000, 000.
A sophisticated investor is a client who doesn’t meet any of the above tests. However, a qualified accountant can issue a person a certificate. This waives their rights to certain consumer protections. This makes them a sophisticated investor, and wholesale client.
Does the difference matter?
A wholesale client requires less disclosure obligations, and compliance costs than a retail client. This is because wholesale clients are assumed to be more financially aware. Thus, policies are in force to protect retail clients. Retail clients are entitled to;
- Financial Services Guide, Statements of Advice and Product Disclosure Statements.
- Consumer protections as outlined in the Future of Financial Advice Reforms.
These aren’t usually available for wholesale clients. However, they have access to more products and investments than retail clients do. In conclusion, to meet your compliance obligations, it’s important to understand and class clients correctly.
Understanding the difference between clients is key to ensuring that your compliance obligations are up to date. For any issues in this area, contact a business finance lawyer for assistance.
Kyle worked in the content team as a legal intern for Lawpath. He is undertaking a Bachelor of Laws with a Bachelor of Psychology (Honours) at Macquarie University.