By Mike Worsnop - 10 May 2011
The Financial Markets Authority (FMA) this week has warned
private investors against allowing themselves to be classified as
wholesale investors and so losing new retail rights and
protections. A part of the Financial Advisers Act 2008 (Act) which
comes into force from 1 July 2011 means that financial advisers
have to follow new professional conduct standards and disclosure
requirements.
However those standards and requirements do not extend to
"wholesale clients". The FMA warning is against steps taken
by some financial advisers to have clients, who would otherwise be
classed as retail investors, signing documents to classify
themselves as "eligible investors" - this would result in the
client being treated as a wholesale investor under the Act and so
not entitled to the new protections.
A wholesale investor includes investors with net assets or
turnover of over one million dollars (as well as local authorities
and crown entities). If you fall into this category and/or
have been asked to confirm that you are an "eligible investor" the
Act allows you to revoke or opt out of giving that
certification. This power rests with the investor and so the
investor has the ability to choose to be treated as either a retail
(with protections) or wholesale (without protections) investor.