Are you a retail or wholesale investor?

While some commercial property funds are available to all investors, others may only be available to ‘wholesale investors.’

The distinction between these two categories is important to understand, as this can hold key implications for both your eligibility for certain investments and the level of disclosure you receive about a fund.

What is a retail investor?

A retail investor is a non-professional investor, commonly referred to as an ‘individual investor.’

Retail investors typically invest smaller amounts than wholesale, or professional investors.

They often use their own personal accounts and invest in stocks, bonds and property funds through brokerage firms, or investment advisories.

Essentially, everyone is a retail investor unless they satisfy one of the requirements to be classified as a wholesale investor under the Corporations Act 2001.

What is a wholesale investor?

A wholesale investor is typically a more experienced investor who has the financial resources to access more opportunities and invest in higher quality assets.

There are several circumstances in which someone may be considered a wholesale investor under the Corporations Act 2001, with the most common being:

1. They have net assets of at least $2.5 million; or
2. They have a gross income for each of the last two financial years of at least $250,000; or
3. A person or entity is willing to invest $500,000 or more into the fund.

In order to verify they meet one of these criteria, investors must obtain an Accountant’s Certificate stating so.

Any registered accountant should be able to complete the Certificate after assessing the above points. Most accountants will have their own template; however, you can also access our standard Accountant’s Certificate template here if required.

What are the key differences between retail and wholesale products?

The primary difference between retail and wholesale products is in the level of compliance involved with each investment.

Disclosure requirements and regulations tend to be a lot higher for retail products, with the intention being to provide investors with a greater level of consumer protection.

Wholesale products are generally designed to cater to more experienced investors, and as such will usually involve fewer compliance obligations and less regulatory requirements under ASIC (The Australian Securities & Investments Commission).

The rationale behind this is that people who are considered wholesale investors are more likely to be able to evaluate interests in a fund without needing the protection of a regulated disclosure statement like a PDS.

Some of the notable differences between a retail and wholesale investor include:

• Retail investors will generally receive all the consumer protections set out in The Future of Financial Advice (FOFA) reforms. This legislation is intended to provide investors with protection from poor financial advice whilst ensuring the availability and affordability of high-quality financial advisors. Wholesale investors will generally have less protection in these areas.
• Retail investors must be provided with a Product Disclosure Statement (PDS) that includes material on a product’s key features, fees, commissions, benefits, risks and complaints handling procedures. This is something a wholesale investor might choose to forgo in favour of a more simplistic Information Memorandum (IM). These aren’t regulated in the same way as the PDS and are not governed by specific content requirements.
• ASIC requires funds open to retail investors to meet increased governance requirements, including an approved constitution and compliance plan, a mandated net tangible assets requirement, and an authorisation for licensee on the investment type (amongst others). In contrast, wholesale investor funds may be able to vary these requirements as part of the fund deed.

Retail vs wholesale managed funds

Retail managed funds are typically available to all investors and will generally involve a lower minimum investment amount. For example, the latest retail fund by Westbridge Funds Management – Westbridge Diversified Fund No. 4 – had a minimum investment amount of $50,000.

As a product targeted to more experienced and high-net worth investors, wholesale funds will often require higher minimum investment amounts, typically in excess of $100,000 per fund, and in some cases as high as $500,000.

Whilst open to fewer investors, wholesale investments allow those with the capability and desire to participate in wholesale markets to access a broader and often more complex range of products, often with a higher risk/return profile than retail products.

Due to the complex compliance requirements and administrative costs involved with retail funds, many fund managers will only include wholesale products as part of their service offering.

For more information on retail vs. wholesale investors and the range of investment opportunities available to each, please contact Westbridge today. Our friendly team of professionals will be delighted to talk you through the various investment options.

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