The Corporations Act 2001 defines two types of investment offers: retail and wholesale. It also offers a definition for retail investors and a wholesale investor definition. By law, everyone is considered a retail investor by default. To be eligible for wholesale investment offers, you must be a wholesale investor, also known as a ‘sophisticated investor’.
This distinction between retail and wholesale investments is to protect investors who are making financial and investment decisions. When engaging with retail investors, advisers and investment companies must fulfill additional compliance regulations. Retail investors are also protected by Future of Financial Advice (FOFA) reforms. Compliance with these regulations restricts the types of investments that can be offered to retail investors.
On the other hand, wholesale investors are considered experienced enough to be able to make their own investment decisions without the protections that are extended to retail investors. It is assumed that wholesale investors are able to apply an appropriate degree of discretion, scrutiny, and discrimination when evaluating an investment.
Wholesale Investor Definition
According to Section 708(8)(c), to meet the wholesale investor definition, an individual must obtain a certificate from a qualified accountant stating that the individual has received a gross annual income surpassing $250,000 for the last two financial years or has over $2,500,000 in net assets. The wholesale investor definition also applies to a company or trust that is controlled by an individual fulfilling the requirements of Section 708(8)(c).
A qualified accountant is defined as members of the Chartered Accountants Australia and New Zealand or the Institute of Public Accountants. The certificate is valid for a period of two years, after which another certificate must be provided.
An individual can also be considered a wholesale investor if they have a statement from an Australian Financial Services licensee acknowledging that that individual has suitable experience to assess the features of the offer. However, this does not apply to general insurance, RSA, or superannuation products.
Benefits of being a Wholesale Investor
While there can be additional risks in wholesale investments, there is nothing to lose by becoming a Sophisticated Investor. Sophisticated Investors are free to invest in wholesale offers, but they are under no obligation to do so. An individual can become a Sophisticated Investor and still choose to invest exclusively in retail investments if they wish.
The primary benefit of becoming a Sophisticated Investor is the freedom to invest in a larger selection of investment offers. Whether or not an individual chooses to act on any of those additional offers is up to them, but it’s always nice to have the option.
To learn about Lion Private Equity’s wholesale investment offers, enquire using the form below.