September 4, 2025 • 26 mins
It sounds so good: Sophisticated Investor status is open to all investors who have enough money to get across the line. But did you know a financial adviser is no longer legally bound to act in your 'best interests' if you sign along the dotted line? Three million people now qualify for Sophisticated Investor status but the regime is creaking and it's time for serious overhaul of the rules.
Peter Burgess, CEO of the Self Managed Super Funds Association joins Associate Editor - James Kirby in this episode.
In today's show, we cover:
- Sophisticated Investor status- Should you?
- Why regulators want to lift the $2.5m threshold
- Dumb money - The case for a knowledge test
- Where's the legislation? New super tax on hold
See omnystudio.com/listener for privacy information.
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:10):
Hello, and welcome to The Australian's Money Puzzle podcast. I'm
James Kirkby. Welcome aboard everybody. Would you like to be
a sophisticated investor? It sounds good, doesn't it, And you'd
get access to special investments that the everyday investor can access.
And I mean I would think if you're an aspirational investor,
of which I imagine most of our listeners are, you
(00:31):
think you'd want to sign up for that and have
that certificate. But I have to tell you sophisticated investor
is as a status is currently under vigorous debate. Let
me tell you across the market, inside the regulation sphere,
and someone who's right across it and also across Division
two nine to six the new super tax, which we'll
(00:53):
talk about also in the show, is Peter Burgess. He's
the CEO at the Self Managed Super Fund Association. And
how are you, Peter?
Speaker 2 (01:01):
I'm good, Thank you, James, thank you for having me
on the show.
Speaker 1 (01:04):
Lovely to have you on the show, and I'm amazed
that it's actually your debut considering how often we talk,
but great to have you on. Now, Sophisticated Investors. Here's
the thing so when I tell people about this, it's
only natural that they immediately want to join this club
(01:24):
that they hadn't heard of. Right, so people understand there
is a status, a legal status called sophisticated investor, and
if it was introduced a long time ago, and the
idea was it was for exotic investments basically that were
risk quite risky and couldn't come under conventional consumer protection
(01:45):
and people were allowed access out if they signed a certificate.
That was how it worked. The issue these days is,
I won't say every time Dick and Harry has one,
but an awful lot of people are entitled to them.
Could you explain what it is? And first of all,
it's become yes.
Speaker 2 (02:02):
Now I think it, James, and you're right, this has
been here for over two decades now. There was a
change is made to the legislation back in two thousand
and one to distinguish between what they call a retail
investor and a wholesale investor. So the legislation makes that distinction.
If you meet the criteria to be treated as a
wholesale investor, it means that you have access to certain
(02:26):
types of investments that may not be available to retail investors,
and some of these investments, as you point out, could
be higher risk type investments, but they also offer the
opportunity for achieving larger returns. Now, in order to meet
that criteria of being a wholesale investor, there are certain tests,
and you only have to meet one of these tests
in order to be classified as a whole stal investor.
(02:48):
So there's a test around your net wealth. You need
to have at least two point five million dollars in
net assets. That's one of the tests. One of the
other tests or income, if you have received two hundred
and fifty thousand dollars or more in income over the
two previous years, will then you satisfy the test. And
the last one is where your investing amounts in excess
(03:08):
of five hundred thousand dollars in one go into the product,
then you meet that test. So you only have to
meet one of those in order to be able to
be classified as a wholesale investor.
Speaker 1 (03:17):
An accountant to assigned a certificate and you have that
classification and then the product seller as such can deal
with you.
Speaker 2 (03:24):
That's right, So you need to be signed off a
recognized accountant.
Speaker 1 (03:28):
And nothing to do with your and we might come
back to this, but nothing whatsoever to do with your
experience or competence. You could be a very bad investor,
but if you have the money, you qualify as sophisticated.
But you might not be sophisticated per se.
Speaker 2 (03:47):
That's right. It's based on those income and assets tests.
As I see, there is another test called the sophisticated
investor test. Now that's where the licensee, like a financial
planning licensee, makes a judgment call based on the experience
of the investor that they are sophisticated and that they
need to ensure that the investor is aware of that,
and the investor has acknowledged that they are being treated
(04:09):
as a sophisticated investor. So that's an additional test in
there as well. So there are a number of tests
that apply. Of course, all the controversy, I guess, all
the debate around these tests have been that they haven't
changed since they were first introduced back in two thousand
and one. So those thresholds that I talked about, the
two and a half million dollars in net wealth and
(04:30):
the two hundred and fifty thousand dollars income over the
last two years, those thresholds have not changed in over
twenty years, so that was.
Speaker 1 (04:38):
A lot of money and two or one right, So
basically there was I don't know, let's pick a number,
fifty thousand people who could qualify then and there was
a lot of money. These days, well, I was just
reading about how construction workers are earning two fifty, mine
workers are earning two fifty and they're good salaries, but
they're actually not spectacular compared to see investment banking or whatever. Similarly,
(05:00):
two and a half million was a lot of money.
Then it's just the price of two houses now in
Sydney and Melbourne and so Peter, the issue is then,
I think it was the A and you came out
and said there's three million people will qualify or as
we stand today, and that proportion is going to go
through the roof in the future. The point I'm making
(05:21):
is so it's not so much an exclusive club and anymore.
The other thing, obviously is that it's strictly on dollars. Now,
what are the criticisms? And I want to put this
on for our listeners. Just by the way, folks, I
do not want to you not to consider being a
FA sophisticated investor absolutely, why not. You should go for
everything you can, but I think we should make it
(05:42):
clear that what is the price of it, Peter in
terms of consumer protection, which isn't always mentioned in the
coverage of this.
Speaker 2 (05:50):
Yeah, that's right. Certainly it gives you access to board
a round's investment options. But the downside is that you
don't have the same level of protection consumer protection that
you would have if you're being treated as a retail investor. So,
for example, the financial advisor that may be giving advice
about the product is not bound by the requirement to
(06:11):
act in your best interest when giving that advice. They
don't need to issue you with what we call a
statement of advice or a product disclosure statement, So there's
much more relaxed disclosure rules around these things if you're
treated as a wholesale investor. But also you don't have
access to the complaints body so aftern we call it
the use join Financial Complaints Authority. And also you don't
(06:32):
have access to the advisor's internal dispute mechanism as well,
So if you're not happy with the advice you received,
then you don't have the ability to go to those
complaint bodies like you would if you were a retail investor,
and it's really important.
Speaker 1 (06:46):
If your investment gets wiped up, you're on your own.
You're on your own. You're saying the document, you've presented
yourself as a sophisticator's investor, and so that's it. That's
the kind of price of it, is it.
Speaker 2 (06:57):
That's right, you don't have access to it is a
compensation like you would have if you were all.
Speaker 1 (07:02):
Potentially it's a bit scary that the financial advisor doesn't
have to act in your best interest. That's scary because
of what I'm leading to is I know because I
cover financial advice very thoroughly, and we publish a survey
of course every year the top one hundred and fifty
financial advisors that, for the sake of efficiency and side
stepping a mountain of red tape, many top advisors now
(07:24):
just say we're wholesale only. They just say, sorry, our
client book we're pretty full. You know, we just have
to be efficient, so we're just taking people on who
are strictly sophisticated. Are you familiar with that development.
Speaker 2 (07:38):
Yes, Look, there are certainly advisors out there that only
give advice to wholes you know, to wholesale clients on
that basis. Yes, that's true, and yeah, I think it's
fair to say that there are some that provide advice
to both types of clients. But absolutely there are some
out there that are just focusing on wholesale clients and
because of that, they don't need they're not subject for
the same regulatory the supervision that others are.
Speaker 1 (08:00):
So, yeah, you can include your house in this.
Speaker 2 (08:05):
Yes, true. So the threshold that I mentioned that two
and a half million dollars in net asset, you can
include your house in that. And of course that's why
there's so much discussion around these thresholds, because we know
that house prices have significantly increased over the last two decades.
So when these thresholds were first putting back in two
thousand and one, housing prizes are certainly not what they
are today. And you were saying before some of the figures,
(08:26):
but you know, when these thresholds were first put in
place in two thousand and one, around two percent of
the adult population would classify or qualify potentially as a
wholesale investor. Now it's close to twenty percent of the population,
and they're forecasting by twenty forty one that you know,
that percentage will be over forty percent of the adult
population would actually meet the definition of a wholesale investor
(08:47):
based on those thresholds.
Speaker 1 (08:48):
So it's it's gone up by ten times. Quick question,
simple question in technical or academic investments work, and you
would be you were previously course the tactical chiefs, you'd
be right across this. A house is not seen from
a textbook perspective as an investable asset. Is it a home?
Speaker 2 (09:09):
Not from a seal phone perspective? If you're living in it,
obviously you can't hold those type of investments, and.
Speaker 1 (09:16):
So do you think it should be excluded.
Speaker 2 (09:20):
Well, it's an open question, James, as to whether the
house should be included in the in that threshold. Now,
there was a parliamentary inquiry that looked at this very
issue as to whether these thresholds should actually be increased,
and that inquiry was completed for the report came out
earlier this year, and it may surprise some that they
came to the conclusion that the thresholds shouldn't be changed.
(09:41):
There were certainly plenty of submissions to that inquiry suggesting
that the threshold should change because obviously it's been as
we're saying it's been two decades now and they haven't changed.
There are plenty of submissions suggesting that they shouldn't change.
And some of the reasons that were put forward for
that is that these thresholds are actually not out of
step with the rest of the world. In other places
around the world that they have these type of tests
(10:03):
and our thresholds here are consistent with that. And there's
an argument that as a community, we are more financially
literate today than we were perhaps twenty years ago. There's
access to information.
Speaker 1 (10:14):
I wonder, and I don't say that facetiously. I'm on
the border of the Financial Literacy Foundation EXTRA and we
know that the OBCD figures showed that Australia actually has
to claimed in terms of financial literacy year after year internationally.
So that doesn't stand up. But tell me, what did
you want? What would you like to see in the
investor tests? What was your what did your submission see?
Speaker 2 (10:34):
Well, we would like to see at least certification that
individuals who have been classified as a whole sil investor
absolutely are aware that they've been classified as a whole
SiGe investor and that they acknowledge that, so that they
understand the consequences of that. One of the problems with
the current sy there's no requirement for someone who's been
classified as a wholesale investor to actually acknowledge that and
(10:55):
to fully understand the consequences have been treated as a
whole stal investor. So, you know what we would like
to see, and this is really a recommendation coming out
of the Quality of Vice review which was undertaken a
few years ago and now by Michelle Leedy, that investors
should be required to acknowledge that yes to being treated
as a whole tale investor, and that they are fully
aware of the consequences of being treated as a whole
(11:17):
sal investor.
Speaker 1 (11:19):
Okay, and what about competency in the form of knowledge
as opposed to just having enough money?
Speaker 2 (11:26):
Yeah, look, I think you could argue that threshold and
not the only thing that should be taken into consideration
here when determining when there's someone's financial literate or not.
And there is a place for some other types of assessments,
but that could be complex as to how you introduce
those type of things. But we certainly wouldn't be opposed
to some other tests being applied that's based on experience
similar to what we see for the sophisticated investor tests.
(11:47):
Right now, if you're coming in through that pathway, then,
as I said earlier on the licensee already has to
get a declaration from you that you understand that you're
being treated as a whole, stole investor and you understand
the consequence.
Speaker 1 (11:58):
So you're to see first of all, rock bottom. You'd
like to see evidence that the person knows that they
think lassified, because it's pretty scary to think that they
might know. Secondly, that you do some capacity for some
knowledge test of some description.
Speaker 2 (12:13):
Is that right? Yeah, that's right?
Speaker 1 (12:15):
And okay, Acik, the regulator whatever came out of the
parliamentary inquiry, ack the regulator, the peak regulator once it
lifted to four point five million, we know that. What
do you think?
Speaker 2 (12:26):
Yeah, Look, we were in that when we made a
submission to this. We were part of a joint submission
with a number of other associations, and we were in
the camp. I was saying, well, yes, it makes sense
that the threshold should increase, Acik. We're proposing an increase,
I think in line with inflation. So if it had
been increased in line with inflation, sits two thousand and one,
we would be out around that four point six million
dollars today and so that makes sense to us. So
(12:46):
we were certainly in the camp of yes, increasing those thresholds, and.
Speaker 1 (12:49):
Did you want it indexed as well?
Speaker 2 (12:51):
Yes, we think there is grounds for indexation. It should
be a certain forget threshold. We believe it's probe to
have indexation in there as well. But you know, if
you go to incre to reach these thresholds, it rises questions,
Ryan grain fathering, what do we do with all these
people that have been in there now and there's a
lot to work through. You are going to increase the
rest thresholds.
Speaker 1 (13:11):
Okay, Interesting about the indexing, which is a most perfect
segue to what I want to talk to you about next,
which is the super tax, which of course you are
in the vanguard of that debate representing self managed super
fund investors who were very much in the frame, if
not in the target, of the measure. We'll be back
in a moment and we're going to catch up on
(13:32):
exactly what's going on with the new supertax. Hello, welcome
back to The Australian's Money Puzzle podcast. I'm James Kirby
talking to Peter Burgess of the Self Managed Super Funds Association,
the CEO and someone who is in the thick of it.
(13:53):
Let me tell you about the new supertax. Okay, how
do I do this? How about I say to you, Peter,
this is what I think is going on with the
new supertax. It is technically has happened.
Speaker 2 (14:06):
It's a law.
Speaker 1 (14:07):
It adds fifteen percent tax on earnings above three million
and it is based on realized gains. It started on
July one, being roughly seven weeks ago. However, it hasn't
passed parliament yet. That's all I know.
Speaker 2 (14:24):
What do you know?
Speaker 1 (14:27):
That's why ally of that it hasn't been passed. It's
not even on the list as I understand. But what
do you understand?
Speaker 2 (14:36):
Yes, there's been no sign of the legislation being reintroduced
into parliament because of course it was introduced into the
previous parliament but didn't pass prior to the election being
called to it lapsed and we haven't seen it reintroduced
into the new parliament yet. Now the Treasurer has made
it very clear that he intends to proceed with this measure,
so we are expecting to see this legislation introduced into Parliament,
(14:57):
possibly in the next sitting, which will be at the
end of October. Now, at this point in time, the
government is saying that they want this to apply from
one July twenty twenty five, which was the There has
always been the start date for this particular measure, which
you know, if it's not passed until late October, we're
well into this financial year and that's going to be
backdated to the first July twenty twenty five. We have
(15:20):
to take the Treasure on face value that he is
certainly keen to proceed with this. We think it is
likely to happen. I think what the debate right now
is all about is what should that start date be. Now.
In our view, it's inappropriate, we think, and unfair for
this tax to be backdated to the first of July
twenty twenty five. What it means, of course, is that
(15:41):
people will won't have a lot of time to make
adjustments to their financial affairs for this tax, because what
we call the first test time, which is thirty June
twenty twenty six, assuming it does start from one July
twenty twenty five, we've got our first test time Now
that's the first date in which people will be assessed
against the three minute, not a threshold they're collecting.
Speaker 1 (16:01):
Basically, they're collecting tax revenue from that date looking back
over the previous twelve months.
Speaker 2 (16:07):
Is that if you're over three million dollars at thirty
June twenty twenty six, well then you will pay Division
two nine to six tax for that for the twenty
five twenty six financial year.
Speaker 1 (16:17):
Now, what is your sort of rough bottom demand here?
Speaker 2 (16:21):
Well, we've opposed this tax from the outset. I should
say that, you know, I'm yet to speak to one
of our members yet that disagrees that, you know, tax
concessions for those with excessively large superheroation balances shouldn't be
reduced in some way. It's the design of this tax
though that everyone is against. It's taxing the unrealized capital
(16:42):
gains is not the solution here. There are other ways
in which we can go about reducing tax concessions for
people that have very large supernoation balances. This is not
the solution taxing people on an unrealized capital gain. So,
you know, we have put forward different ideas to government.
We've put forward amendments to the existing legislation to make it.
If we're going to have a tax on earnings like this,
(17:03):
then it has to be based on what we call
actual tax bill ownings, because as soon as you move
away from that, then you are taxing people and unrealized
capital gains. And so we've been trying to convince the
government that they need to make amendments to this legislation
to get it back to actual tax will income. I think,
as I said, we will see this legislation introduced. I
expect the Government will be very keen to get this
(17:26):
through quickly, so they'll need the Greens support, and not
only to support the bill, but they'll also need the
Greens we think, to support what we call a guillotine motion,
because I think the government will be keen to bypass
the normal debate phase in Parliament and also committee stage
of this, and they want to go to a vote
and they'll need.
Speaker 1 (17:44):
The Gun and then do a trade off. I want
to do this. What's your worst case scenario that the
Greens get their way and the whole thing goes through
as planned, except that Kapp is two million instead of three.
What's your worst case scenario?
Speaker 2 (17:57):
Yeah, look, the worst cast scenario is that it does
go through with lower threshold, So it goes through without changes,
So they do tax unrealized capital gains in the threshold
applies for two million dollars. Now, you know, I would
be amazed if the government agrees to reduce the thresholder
two million dollars. It would mean even more people are
going to be infected by the taxing underrealized capital gains.
And of course they are cropping a fever of heat
(18:18):
about that. So I'd be very surprised if agrees to
drop it to two million dollars.
Speaker 1 (18:22):
And your best case that they push it forward a
year perhaps and do some amendments, and what might those
amendments feasibly be.
Speaker 2 (18:30):
Yeah, So look, our best case here would be we
want this tax to ferd by at least twelve months.
We think people need more time to make adjustments to
their financial affairs, and Treasury acknowledge this when the legislation
was first announced, that people would need a long lead
in time in order to adjust to this tax. Now,
in some cases it requires people to be selling property
out of their self many superfund That takes time. So
(18:51):
there was an ignowledgment back then that at least twelve
months now, we're not going to have that if they
push forward to the star date of one to low
twenty five. So yes, we want to see pherrel. We
think that we'll give the government an opportunity to sit
down with the industry and talk through some other ways
to go about this and hopefully address the taxing unrealized
capital gains. We believe there are ways amendments that can
(19:13):
be made this legislation to get it back to using
actual taxble earnings and if we get back to that,
then we're not taxing unrealized gains. And that's the big
problem with this tax. Big problem the designer this tax
that we've been against since day one, and we'll keep
advocating against it as long as we can.
Speaker 1 (19:30):
Right one last thing. If they're pushing forward a year,
there are revenue estimates. Obviously in the budget I think
I saw our political team said it would cost three
hundred million in last revenue. So that would wear against
your hoops.
Speaker 2 (19:46):
Well well pit potentially, yes, but in the scheme of things,
I'd like to think that's a rounding error, and then
there is scope for the government to sit down with
the industry. Gives more time, as I said, to consult
on some of the design features of this tax which
have been non negotiable today.
Speaker 1 (20:00):
Okay, very good, All right, well folks, there you are.
That's the latest on the new super tax. It's fascinating
that it isn't even pasted in Parliament that was supposed
to have started seven weeks ago. It's also fascinating, as
Peter said, that they may do what they call it guillotine,
and what that means is that basically, one afternoon, out
(20:22):
of the blue, they say it's going through now and
you've got about an hour to fix it, and there's
a deal done, a backroom deal. Basically they say to
the Green something entirely different, utterly different, like they'll put
three windmills in somewhere else, or nothing to do with
super whatsoever. It's called a guillotine. They package it all
up and they go bang, it's done. And that obviously
is the distinct risk here, I would think. All right,
back in the moment, I've got some good questions ready
(20:43):
for Peter. Hello and welcome back to The Australian's Money
Puzzle podcast. I'm with Peter Burgess. He's the chief executive
officer of the self managed super funds souciation, which represents,
as you may well know, something like how many people now, Peter,
(21:05):
one point three or four million?
Speaker 2 (21:08):
Oh my, we're two million trustees, six hundred and forty
thousand odd self many super funds.
Speaker 1 (21:13):
Okay, yeah, yes, one point two million people in the
self man super funds now, which is good, good to see,
and it's a marvelous way for people who do the
work and do the homework to invest. And it's something
that yes, I am enthusiastic about because I think for
someone who was an active investor, it does open up
all sorts of opportunities if you're willing to do the
(21:35):
work and take the responsibility. All right, now, a first
piece of correspondence is this is a piece of correspondence
that came in. The person wanted to keep their name,
didn't want their name used at all, first name or
second name, so I'll have to stick with that. But
here it is your last podcast on financial literacy as
the ultimate defense against scandals. Particularly resonated with me. Last
(21:56):
year we had a family member involved in a scandal.
They lost a lot of money. Family was in a
state of shock. We try to report or engaged with
the bank this person's account was with, but they showed
no interest blaming the victim. I was surprised, as with
the high level of automation based on computer processing we
(22:16):
currently have, someone should have been able to pick up
the sudden increase in activity with this one account, but
no one did. We tried reporting also to the local police,
again no response. We have reported it to scam Watch.
We've moved on with life, but we feel as if
the banks are only there as a big ATM, not
to help safeguard our livelihood. That's a genuine peace correspondence
(22:40):
from someone who was scammed, and I recommend you do
listen to last week's Peace podcast with doctor Tracy West
of the Extra Foundation, who was the education manager there
about basically, we can do a lot of regulation, you
can have piles of regulation, but there's nothing strong I
think as self defense in terms of financially financially interested
(23:01):
getting up to speed to yourself or getting your kids
up to speed in school, which is something we were
driving at in that podcast. All right, Don asks, well,
the fifteen percent supertax apply to both accumulation or pension
balances of a three million, and will it include pension withdraws, so.
Speaker 2 (23:21):
It will include both your accumulation assets as well as
your pension So the way it works based on your
total superbalance and the movement in your total superbalance from
the start of the financial year to the end. So
your total superbalance includes money you've got in the accumulation
phase as well as money you have in the pension phase,
so it applies to both phases. In terms of pension payments,
(23:46):
any pension payment made during the course of the income
year will be added back to your balance for the
purpose of calculating your earnings for the years. So there
is a formula they use to calculate earnings under the
Vision two nine and six. It is based on the
movement of your balance from the start to the end.
But they do make adjustments for things like withdrawals and
(24:07):
contributions that you've made made during the course of the
year too.
Speaker 1 (24:10):
And show And that's just a conventional accounting, isn't it.
I mean that's not as such. I mean you would
this is what you would naturally do, that's right.
Speaker 2 (24:18):
They're doing it to ensure that the earnings figure is
not overstated or understated by the fact that your contributions
will will take the withdrawals out.
Speaker 1 (24:25):
And just one last thing on that. So the fifteen
percent the new tax, it applies on accumulation and pensions.
So if you haven't retired, let's say you're fifty and
you cross the three million, you're you're in the tax
net from then on, even though you haven't retired.
Speaker 2 (24:42):
Is that right, Well, that's right. This tax will apply
a gallus when you're retired or not. It's purely based
on your So if you have a balance and excess
of three million dollars, then you will be subject to
a division two nine six on the earnings portion above
three million dollars. So you know, division does not apply
to your whole balance, the earnings of all of your balance.
It's just that fortunate above three million dollars.
Speaker 1 (25:03):
Yeah, the portion above, And that's an important point. It's
just to recap folks, sits on earnings above three million.
Speaker 2 (25:10):
And it's on your One of the other misconceptions here,
it's based on the balance of your self many superfund.
But it's not based on your combined balance. It's your
individual superheroation balance that you used to determine whether you're
over that's three million dollars per capita.
Speaker 1 (25:25):
So if there's two in the fund, it's divided by
two of the six in the fund that's divided by six.
Speaker 2 (25:30):
Is that it? Yeah, So you could have a situation
where the total fund balance is five million dollars, but
the rise of two min two members, both who have
two point five million dollars, they don't pay division two
one six because they're not own neither of them over
that's three million dollars threshold.
Speaker 1 (25:46):
Terrific. Great, great to have you on and great to
have you answering the questions. A perfectly place to do so.
That was Peter Burgess of the Self Managed Super Funds
Association the See You're great to have him on the show.
Thanks Peter, Thanks James, and keep the emails rolling the
money puzzle at the Australian dot com dot au. Talk
to you soon.
Hello, and welcome to The Australian's Money Puzzle podcast. I'm
James Kirkby. Welcome aboard everybody. Would you like to be
a sophisticated investor? It sounds good, doesn't it, And you'd
get access to special investments that the everyday investor can access.
And I mean I would think if you're an aspirational investor,
of which I imagine most of our listeners are, you
(00:31):
think you'd want to sign up for that and have
that certificate. But I have to tell you sophisticated investor
is as a status is currently under vigorous debate. Let
me tell you across the market, inside the regulation sphere,
and someone who's right across it and also across Division
two nine to six the new super tax, which we'll
(00:53):
talk about also in the show, is Peter Burgess. He's
the CEO at the Self Managed Super Fund Association. And
how are you, Peter?
Speaker 2 (01:01):
I'm good, Thank you, James, thank you for having me
on the show.
Speaker 1 (01:04):
Lovely to have you on the show, and I'm amazed
that it's actually your debut considering how often we talk,
but great to have you on. Now, Sophisticated Investors. Here's
the thing so when I tell people about this, it's
only natural that they immediately want to join this club
(01:24):
that they hadn't heard of. Right, so people understand there
is a status, a legal status called sophisticated investor, and
if it was introduced a long time ago, and the
idea was it was for exotic investments basically that were
risk quite risky and couldn't come under conventional consumer protection
(01:45):
and people were allowed access out if they signed a certificate.
That was how it worked. The issue these days is,
I won't say every time Dick and Harry has one,
but an awful lot of people are entitled to them.
Could you explain what it is? And first of all,
it's become yes.
Speaker 2 (02:02):
Now I think it, James, and you're right, this has
been here for over two decades now. There was a
change is made to the legislation back in two thousand
and one to distinguish between what they call a retail
investor and a wholesale investor. So the legislation makes that distinction.
If you meet the criteria to be treated as a
wholesale investor, it means that you have access to certain
(02:26):
types of investments that may not be available to retail investors,
and some of these investments, as you point out, could
be higher risk type investments, but they also offer the
opportunity for achieving larger returns. Now, in order to meet
that criteria of being a wholesale investor, there are certain tests,
and you only have to meet one of these tests
in order to be classified as a whole stal investor.
(02:48):
So there's a test around your net wealth. You need
to have at least two point five million dollars in
net assets. That's one of the tests. One of the
other tests or income, if you have received two hundred
and fifty thousand dollars or more in income over the
two previous years, will then you satisfy the test. And
the last one is where your investing amounts in excess
(03:08):
of five hundred thousand dollars in one go into the product,
then you meet that test. So you only have to
meet one of those in order to be able to
be classified as a wholesale investor.
Speaker 1 (03:17):
An accountant to assigned a certificate and you have that
classification and then the product seller as such can deal
with you.
Speaker 2 (03:24):
That's right, So you need to be signed off a
recognized accountant.
Speaker 1 (03:28):
And nothing to do with your and we might come
back to this, but nothing whatsoever to do with your
experience or competence. You could be a very bad investor,
but if you have the money, you qualify as sophisticated.
But you might not be sophisticated per se.
Speaker 2 (03:47):
That's right. It's based on those income and assets tests.
As I see, there is another test called the sophisticated
investor test. Now that's where the licensee, like a financial
planning licensee, makes a judgment call based on the experience
of the investor that they are sophisticated and that they
need to ensure that the investor is aware of that,
and the investor has acknowledged that they are being treated
(04:09):
as a sophisticated investor. So that's an additional test in
there as well. So there are a number of tests
that apply. Of course, all the controversy, I guess, all
the debate around these tests have been that they haven't
changed since they were first introduced back in two thousand
and one. So those thresholds that I talked about, the
two and a half million dollars in net wealth and
(04:30):
the two hundred and fifty thousand dollars income over the
last two years, those thresholds have not changed in over
twenty years, so that was.
Speaker 1 (04:38):
A lot of money and two or one right, So
basically there was I don't know, let's pick a number,
fifty thousand people who could qualify then and there was
a lot of money. These days, well, I was just
reading about how construction workers are earning two fifty, mine
workers are earning two fifty and they're good salaries, but
they're actually not spectacular compared to see investment banking or whatever. Similarly,
(05:00):
two and a half million was a lot of money.
Then it's just the price of two houses now in
Sydney and Melbourne and so Peter, the issue is then,
I think it was the A and you came out
and said there's three million people will qualify or as
we stand today, and that proportion is going to go
through the roof in the future. The point I'm making
(05:21):
is so it's not so much an exclusive club and anymore.
The other thing, obviously is that it's strictly on dollars. Now,
what are the criticisms? And I want to put this
on for our listeners. Just by the way, folks, I
do not want to you not to consider being a
FA sophisticated investor absolutely, why not. You should go for
everything you can, but I think we should make it
(05:42):
clear that what is the price of it, Peter in
terms of consumer protection, which isn't always mentioned in the
coverage of this.
Speaker 2 (05:50):
Yeah, that's right. Certainly it gives you access to board
a round's investment options. But the downside is that you
don't have the same level of protection consumer protection that
you would have if you're being treated as a retail investor. So,
for example, the financial advisor that may be giving advice
about the product is not bound by the requirement to
(06:11):
act in your best interest when giving that advice. They
don't need to issue you with what we call a
statement of advice or a product disclosure statement, So there's
much more relaxed disclosure rules around these things if you're
treated as a wholesale investor. But also you don't have
access to the complaints body so aftern we call it
the use join Financial Complaints Authority. And also you don't
(06:32):
have access to the advisor's internal dispute mechanism as well,
So if you're not happy with the advice you received,
then you don't have the ability to go to those
complaint bodies like you would if you were a retail investor,
and it's really important.
Speaker 1 (06:46):
If your investment gets wiped up, you're on your own.
You're on your own. You're saying the document, you've presented
yourself as a sophisticator's investor, and so that's it. That's
the kind of price of it, is it.
Speaker 2 (06:57):
That's right, you don't have access to it is a
compensation like you would have if you were all.
Speaker 1 (07:02):
Potentially it's a bit scary that the financial advisor doesn't
have to act in your best interest. That's scary because
of what I'm leading to is I know because I
cover financial advice very thoroughly, and we publish a survey
of course every year the top one hundred and fifty
financial advisors that, for the sake of efficiency and side
stepping a mountain of red tape, many top advisors now
(07:24):
just say we're wholesale only. They just say, sorry, our
client book we're pretty full. You know, we just have
to be efficient, so we're just taking people on who
are strictly sophisticated. Are you familiar with that development.
Speaker 2 (07:38):
Yes, Look, there are certainly advisors out there that only
give advice to wholes you know, to wholesale clients on
that basis. Yes, that's true, and yeah, I think it's
fair to say that there are some that provide advice
to both types of clients. But absolutely there are some
out there that are just focusing on wholesale clients and
because of that, they don't need they're not subject for
the same regulatory the supervision that others are.
Speaker 1 (08:00):
So, yeah, you can include your house in this.
Speaker 2 (08:05):
Yes, true. So the threshold that I mentioned that two
and a half million dollars in net asset, you can
include your house in that. And of course that's why
there's so much discussion around these thresholds, because we know
that house prices have significantly increased over the last two decades.
So when these thresholds were first putting back in two
thousand and one, housing prizes are certainly not what they
are today. And you were saying before some of the figures,
(08:26):
but you know, when these thresholds were first put in
place in two thousand and one, around two percent of
the adult population would classify or qualify potentially as a
wholesale investor. Now it's close to twenty percent of the population,
and they're forecasting by twenty forty one that you know,
that percentage will be over forty percent of the adult
population would actually meet the definition of a wholesale investor
(08:47):
based on those thresholds.
Speaker 1 (08:48):
So it's it's gone up by ten times. Quick question,
simple question in technical or academic investments work, and you
would be you were previously course the tactical chiefs, you'd
be right across this. A house is not seen from
a textbook perspective as an investable asset. Is it a home?
Speaker 2 (09:09):
Not from a seal phone perspective? If you're living in it,
obviously you can't hold those type of investments, and.
Speaker 1 (09:16):
So do you think it should be excluded.
Speaker 2 (09:20):
Well, it's an open question, James, as to whether the
house should be included in the in that threshold. Now,
there was a parliamentary inquiry that looked at this very
issue as to whether these thresholds should actually be increased,
and that inquiry was completed for the report came out
earlier this year, and it may surprise some that they
came to the conclusion that the thresholds shouldn't be changed.
(09:41):
There were certainly plenty of submissions to that inquiry suggesting
that the threshold should change because obviously it's been as
we're saying it's been two decades now and they haven't changed.
There are plenty of submissions suggesting that they shouldn't change.
And some of the reasons that were put forward for
that is that these thresholds are actually not out of
step with the rest of the world. In other places
around the world that they have these type of tests
(10:03):
and our thresholds here are consistent with that. And there's
an argument that as a community, we are more financially
literate today than we were perhaps twenty years ago. There's
access to information.
Speaker 1 (10:14):
I wonder, and I don't say that facetiously. I'm on
the border of the Financial Literacy Foundation EXTRA and we
know that the OBCD figures showed that Australia actually has
to claimed in terms of financial literacy year after year internationally.
So that doesn't stand up. But tell me, what did
you want? What would you like to see in the
investor tests? What was your what did your submission see?
Speaker 2 (10:34):
Well, we would like to see at least certification that
individuals who have been classified as a whole sil investor
absolutely are aware that they've been classified as a whole
SiGe investor and that they acknowledge that, so that they
understand the consequences of that. One of the problems with
the current sy there's no requirement for someone who's been
classified as a wholesale investor to actually acknowledge that and
(10:55):
to fully understand the consequences have been treated as a
whole stal investor. So, you know what we would like
to see, and this is really a recommendation coming out
of the Quality of Vice review which was undertaken a
few years ago and now by Michelle Leedy, that investors
should be required to acknowledge that yes to being treated
as a whole tale investor, and that they are fully
aware of the consequences of being treated as a whole
(11:17):
sal investor.
Speaker 1 (11:19):
Okay, and what about competency in the form of knowledge
as opposed to just having enough money?
Speaker 2 (11:26):
Yeah, look, I think you could argue that threshold and
not the only thing that should be taken into consideration
here when determining when there's someone's financial literate or not.
And there is a place for some other types of assessments,
but that could be complex as to how you introduce
those type of things. But we certainly wouldn't be opposed
to some other tests being applied that's based on experience
similar to what we see for the sophisticated investor tests.
(11:47):
Right now, if you're coming in through that pathway, then,
as I said earlier on the licensee already has to
get a declaration from you that you understand that you're
being treated as a whole, stole investor and you understand
the consequence.
Speaker 1 (11:58):
So you're to see first of all, rock bottom. You'd
like to see evidence that the person knows that they
think lassified, because it's pretty scary to think that they
might know. Secondly, that you do some capacity for some
knowledge test of some description.
Speaker 2 (12:13):
Is that right? Yeah, that's right?
Speaker 1 (12:15):
And okay, Acik, the regulator whatever came out of the
parliamentary inquiry, ack the regulator, the peak regulator once it
lifted to four point five million, we know that. What
do you think?
Speaker 2 (12:26):
Yeah, Look, we were in that when we made a
submission to this. We were part of a joint submission
with a number of other associations, and we were in
the camp. I was saying, well, yes, it makes sense
that the threshold should increase, Acik. We're proposing an increase,
I think in line with inflation. So if it had
been increased in line with inflation, sits two thousand and one,
we would be out around that four point six million
dollars today and so that makes sense to us. So
(12:46):
we were certainly in the camp of yes, increasing those thresholds, and.
Speaker 1 (12:49):
Did you want it indexed as well?
Speaker 2 (12:51):
Yes, we think there is grounds for indexation. It should
be a certain forget threshold. We believe it's probe to
have indexation in there as well. But you know, if
you go to incre to reach these thresholds, it rises questions,
Ryan grain fathering, what do we do with all these
people that have been in there now and there's a
lot to work through. You are going to increase the
rest thresholds.
Speaker 1 (13:11):
Okay, Interesting about the indexing, which is a most perfect
segue to what I want to talk to you about next,
which is the super tax, which of course you are
in the vanguard of that debate representing self managed super
fund investors who were very much in the frame, if
not in the target, of the measure. We'll be back
in a moment and we're going to catch up on
(13:32):
exactly what's going on with the new supertax. Hello, welcome
back to The Australian's Money Puzzle podcast. I'm James Kirby
talking to Peter Burgess of the Self Managed Super Funds Association,
the CEO and someone who is in the thick of it.
(13:53):
Let me tell you about the new supertax. Okay, how
do I do this? How about I say to you, Peter,
this is what I think is going on with the
new supertax. It is technically has happened.
Speaker 2 (14:06):
It's a law.
Speaker 1 (14:07):
It adds fifteen percent tax on earnings above three million
and it is based on realized gains. It started on
July one, being roughly seven weeks ago. However, it hasn't
passed parliament yet. That's all I know.
Speaker 2 (14:24):
What do you know?
Speaker 1 (14:27):
That's why ally of that it hasn't been passed. It's
not even on the list as I understand. But what
do you understand?
Speaker 2 (14:36):
Yes, there's been no sign of the legislation being reintroduced
into parliament because of course it was introduced into the
previous parliament but didn't pass prior to the election being
called to it lapsed and we haven't seen it reintroduced
into the new parliament yet. Now the Treasurer has made
it very clear that he intends to proceed with this measure,
so we are expecting to see this legislation introduced into Parliament,
(14:57):
possibly in the next sitting, which will be at the
end of October. Now, at this point in time, the
government is saying that they want this to apply from
one July twenty twenty five, which was the There has
always been the start date for this particular measure, which
you know, if it's not passed until late October, we're
well into this financial year and that's going to be
backdated to the first July twenty twenty five. We have
(15:20):
to take the Treasure on face value that he is
certainly keen to proceed with this. We think it is
likely to happen. I think what the debate right now
is all about is what should that start date be. Now.
In our view, it's inappropriate, we think, and unfair for
this tax to be backdated to the first of July
twenty twenty five. What it means, of course, is that
(15:41):
people will won't have a lot of time to make
adjustments to their financial affairs for this tax, because what
we call the first test time, which is thirty June
twenty twenty six, assuming it does start from one July
twenty twenty five, we've got our first test time Now
that's the first date in which people will be assessed
against the three minute, not a threshold they're collecting.
Speaker 1 (16:01):
Basically, they're collecting tax revenue from that date looking back
over the previous twelve months.
Speaker 2 (16:07):
Is that if you're over three million dollars at thirty
June twenty twenty six, well then you will pay Division
two nine to six tax for that for the twenty
five twenty six financial year.
Speaker 1 (16:17):
Now, what is your sort of rough bottom demand here?
Speaker 2 (16:21):
Well, we've opposed this tax from the outset. I should
say that, you know, I'm yet to speak to one
of our members yet that disagrees that, you know, tax
concessions for those with excessively large superheroation balances shouldn't be
reduced in some way. It's the design of this tax
though that everyone is against. It's taxing the unrealized capital
(16:42):
gains is not the solution here. There are other ways
in which we can go about reducing tax concessions for
people that have very large supernoation balances. This is not
the solution taxing people on an unrealized capital gain. So,
you know, we have put forward different ideas to government.
We've put forward amendments to the existing legislation to make it.
If we're going to have a tax on earnings like this,
(17:03):
then it has to be based on what we call
actual tax bill ownings, because as soon as you move
away from that, then you are taxing people and unrealized
capital gains. And so we've been trying to convince the
government that they need to make amendments to this legislation
to get it back to actual tax will income. I think,
as I said, we will see this legislation introduced. I
expect the Government will be very keen to get this
(17:26):
through quickly, so they'll need the Greens support, and not
only to support the bill, but they'll also need the
Greens we think, to support what we call a guillotine motion,
because I think the government will be keen to bypass
the normal debate phase in Parliament and also committee stage
of this, and they want to go to a vote
and they'll need.
Speaker 1 (17:44):
The Gun and then do a trade off. I want
to do this. What's your worst case scenario that the
Greens get their way and the whole thing goes through
as planned, except that Kapp is two million instead of three.
What's your worst case scenario?
Speaker 2 (17:57):
Yeah, look, the worst cast scenario is that it does
go through with lower threshold, So it goes through without changes,
So they do tax unrealized capital gains in the threshold
applies for two million dollars. Now, you know, I would
be amazed if the government agrees to reduce the thresholder
two million dollars. It would mean even more people are
going to be infected by the taxing underrealized capital gains.
And of course they are cropping a fever of heat
(18:18):
about that. So I'd be very surprised if agrees to
drop it to two million dollars.
Speaker 1 (18:22):
And your best case that they push it forward a
year perhaps and do some amendments, and what might those
amendments feasibly be.
Speaker 2 (18:30):
Yeah, So look, our best case here would be we
want this tax to ferd by at least twelve months.
We think people need more time to make adjustments to
their financial affairs, and Treasury acknowledge this when the legislation
was first announced, that people would need a long lead
in time in order to adjust to this tax. Now,
in some cases it requires people to be selling property
out of their self many superfund That takes time. So
(18:51):
there was an ignowledgment back then that at least twelve
months now, we're not going to have that if they
push forward to the star date of one to low
twenty five. So yes, we want to see pherrel. We
think that we'll give the government an opportunity to sit
down with the industry and talk through some other ways
to go about this and hopefully address the taxing unrealized
capital gains. We believe there are ways amendments that can
(19:13):
be made this legislation to get it back to using
actual taxble earnings and if we get back to that,
then we're not taxing unrealized gains. And that's the big
problem with this tax. Big problem the designer this tax
that we've been against since day one, and we'll keep
advocating against it as long as we can.
Speaker 1 (19:30):
Right one last thing. If they're pushing forward a year,
there are revenue estimates. Obviously in the budget I think
I saw our political team said it would cost three
hundred million in last revenue. So that would wear against
your hoops.
Speaker 2 (19:46):
Well well pit potentially, yes, but in the scheme of things,
I'd like to think that's a rounding error, and then
there is scope for the government to sit down with
the industry. Gives more time, as I said, to consult
on some of the design features of this tax which
have been non negotiable today.
Speaker 1 (20:00):
Okay, very good, All right, well folks, there you are.
That's the latest on the new super tax. It's fascinating
that it isn't even pasted in Parliament that was supposed
to have started seven weeks ago. It's also fascinating, as
Peter said, that they may do what they call it guillotine,
and what that means is that basically, one afternoon, out
(20:22):
of the blue, they say it's going through now and
you've got about an hour to fix it, and there's
a deal done, a backroom deal. Basically they say to
the Green something entirely different, utterly different, like they'll put
three windmills in somewhere else, or nothing to do with
super whatsoever. It's called a guillotine. They package it all
up and they go bang, it's done. And that obviously
is the distinct risk here, I would think. All right,
back in the moment, I've got some good questions ready
(20:43):
for Peter. Hello and welcome back to The Australian's Money
Puzzle podcast. I'm with Peter Burgess. He's the chief executive
officer of the self managed super funds souciation, which represents,
as you may well know, something like how many people now, Peter,
(21:05):
one point three or four million?
Speaker 2 (21:08):
Oh my, we're two million trustees, six hundred and forty
thousand odd self many super funds.
Speaker 1 (21:13):
Okay, yeah, yes, one point two million people in the
self man super funds now, which is good, good to see,
and it's a marvelous way for people who do the
work and do the homework to invest. And it's something
that yes, I am enthusiastic about because I think for
someone who was an active investor, it does open up
all sorts of opportunities if you're willing to do the
(21:35):
work and take the responsibility. All right, now, a first
piece of correspondence is this is a piece of correspondence
that came in. The person wanted to keep their name,
didn't want their name used at all, first name or
second name, so I'll have to stick with that. But
here it is your last podcast on financial literacy as
the ultimate defense against scandals. Particularly resonated with me. Last
(21:56):
year we had a family member involved in a scandal.
They lost a lot of money. Family was in a
state of shock. We try to report or engaged with
the bank this person's account was with, but they showed
no interest blaming the victim. I was surprised, as with
the high level of automation based on computer processing we
(22:16):
currently have, someone should have been able to pick up
the sudden increase in activity with this one account, but
no one did. We tried reporting also to the local police,
again no response. We have reported it to scam Watch.
We've moved on with life, but we feel as if
the banks are only there as a big ATM, not
to help safeguard our livelihood. That's a genuine peace correspondence
(22:40):
from someone who was scammed, and I recommend you do
listen to last week's Peace podcast with doctor Tracy West
of the Extra Foundation, who was the education manager there
about basically, we can do a lot of regulation, you
can have piles of regulation, but there's nothing strong I
think as self defense in terms of financially financially interested
(23:01):
getting up to speed to yourself or getting your kids
up to speed in school, which is something we were
driving at in that podcast. All right, Don asks, well,
the fifteen percent supertax apply to both accumulation or pension
balances of a three million, and will it include pension withdraws, so.
Speaker 2 (23:21):
It will include both your accumulation assets as well as
your pension So the way it works based on your
total superbalance and the movement in your total superbalance from
the start of the financial year to the end. So
your total superbalance includes money you've got in the accumulation
phase as well as money you have in the pension phase,
so it applies to both phases. In terms of pension payments,
(23:46):
any pension payment made during the course of the income
year will be added back to your balance for the
purpose of calculating your earnings for the years. So there
is a formula they use to calculate earnings under the
Vision two nine and six. It is based on the
movement of your balance from the start to the end.
But they do make adjustments for things like withdrawals and
(24:07):
contributions that you've made made during the course of the
year too.
Speaker 1 (24:10):
And show And that's just a conventional accounting, isn't it.
I mean that's not as such. I mean you would
this is what you would naturally do, that's right.
Speaker 2 (24:18):
They're doing it to ensure that the earnings figure is
not overstated or understated by the fact that your contributions
will will take the withdrawals out.
Speaker 1 (24:25):
And just one last thing on that. So the fifteen
percent the new tax, it applies on accumulation and pensions.
So if you haven't retired, let's say you're fifty and
you cross the three million, you're you're in the tax
net from then on, even though you haven't retired.
Speaker 2 (24:42):
Is that right, Well, that's right. This tax will apply
a gallus when you're retired or not. It's purely based
on your So if you have a balance and excess
of three million dollars, then you will be subject to
a division two nine six on the earnings portion above
three million dollars. So you know, division does not apply
to your whole balance, the earnings of all of your balance.
It's just that fortunate above three million dollars.
Speaker 1 (25:03):
Yeah, the portion above, And that's an important point. It's
just to recap folks, sits on earnings above three million.
Speaker 2 (25:10):
And it's on your One of the other misconceptions here,
it's based on the balance of your self many superfund.
But it's not based on your combined balance. It's your
individual superheroation balance that you used to determine whether you're
over that's three million dollars per capita.
Speaker 1 (25:25):
So if there's two in the fund, it's divided by
two of the six in the fund that's divided by six.
Speaker 2 (25:30):
Is that it? Yeah, So you could have a situation
where the total fund balance is five million dollars, but
the rise of two min two members, both who have
two point five million dollars, they don't pay division two
one six because they're not own neither of them over
that's three million dollars threshold.
Speaker 1 (25:46):
Terrific. Great, great to have you on and great to
have you answering the questions. A perfectly place to do so.
That was Peter Burgess of the Self Managed Super Funds
Association the See You're great to have him on the show.
Thanks Peter, Thanks James, and keep the emails rolling the
money puzzle at the Australian dot com dot au. Talk
to you soon.
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