Complex products, wholesale clients, blurred lines: the new compliance challenge 

The investment landscape is becoming more sophisticated by the year, but founder of Kit Legal, Catherine Evans’ message is that governance is not keeping pace.

As advisers move further into private markets, wholesale structures and more complex product wrappers, they face a rising legal and compliance burden that many do not fully appreciate. She does not worry that advisers act improperly; she worries that the systems, expertise and oversight required to support these decisions demand materially more from them.

Evans’ perspective is grounded in practice. As a compliance lawyer working closely with self-licensed firms, she sees the variation in how different groups approach these challenges. Some have embedded expertise and clear processes. Others are still, in her words, “dabbling,” relying on partial understanding or second-hand interpretations of regulation. In a simpler market, that might have been manageable. In today’s environment, it is becoming a risk.

Expertise is no longer optional

Evans’ first point is direct. As regulation evolves and structures become more complex, firms need to ensure they have the right expertise in place. That does not necessarily mean building large internal legal teams. But it does mean knowing where to get reliable advice quickly and ensuring the practice truly understands the relevant obligations.

Her reference to Div 296 is a case in point. Changes like this create multiple layers of planning considerations, and firms need to be across all of them, not just the headline impact. Evans’ concern is that too many groups are still forming views based on what they have read or heard, rather than engaging directly with the legal and regulatory detail.

That gap becomes more problematic as advisers move into areas such as private markets and wholesale investing. Here the disclosure is lighter and structures are less standardised. In those settings, assumptions can be dangerous. Evans’ advice is simple, get the right support early, and do not rely on guesswork.

Wholesale does not mean lower duty

A second key theme in Evans’ remarks is the growing focus on conflicts of interest, particularly in the wholesale space. Historically, some firms have treated wholesale clients as requiring less stringent governance, on the basis that they are more sophisticated. Evans suggests that assumption is being tested.

ASIC’s evolving guidance on conflicts is now placing more attention on wholesale arrangements, including the duties advisers and trustees owe in that segment. That has implications for how firms structure products, manage related-party relationships and disclose potential conflicts. Evans’ warning is that this issue may have been underappreciated until now.

Importantly, she links this back to the broader growth in private markets. As more capital flows into less transparent structures, the potential for conflicts increases, whether through affiliated entities, fee arrangements or investment selection processes. Advisers need to think about these issues holistically, rather than treating wholesale investing as a separate, lower-risk category.

“It’s good to get the right expertise, so you’re not guessing at things or assuming based on what you’ve read,” she says.

Complexity is testing governance frameworks

Evans’ point is that many of the structures now coming to market are simply harder to understand. Even with a background in banking and finance law, she notes that some issuing documents are difficult to interpret. That creates a real challenge for investment committees tasked with assessing these products and forming a view on their suitability.

Her solution is a more multidisciplinary approach. Legal, investment and compliance perspectives need to come together earlier in the process, rather than operating in silos. A product does not simply clear an investment hurdle; advisers also understand it from a legal and structural perspective. Finally, they translate it into something clients can clearly grasp.

That communication chain is critical. Evans points out that problems tend to surface not when markets are rising, but when something goes wrong. At that point, scrutiny focuses on what advisers explained, who delivered the message and whether clients genuinely understood the risks. In retail markets, there is a clear regulatory framework guiding that process. In wholesale markets, there is more flexibility, but also more responsibility.

This is where the real pressure is building for advisers. As portfolios incorporate more private assets, thematic exposures and complex wrappers, the gap between product sophistication and client understanding can widen. Evans’ view is that governance frameworks need to evolve to close that gap; hence, ensuring that investment decisions are properly interrogated and that explanations to clients are robust.

Her broader message is measured but firm. The industry is moving into a more complex phase, and that brings opportunity. But it also raises the stakes on compliance, conflicts and communication. Advisers do not need to become lawyers, but they do need to ensure the right expertise sits around the table. In a market where structures are getting harder to read and risks are less visible; governance may become the most important differentiator of all.