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Understand what being treated as a wholesale investor means and which consumer protections may no longer apply to you.
Wholesale and retail investors: why the difference matters
Most people invest as retail investors, with important protections under Australia's financial services laws.
For some investments or financial services, you may be treated as a wholesale investor instead. This means some protections that apply to retail investors will not apply to you. The legal term for a wholesale investor is “wholesale client”.
Before investing, understand why you are being treated this way and what it means for you. You can be treated as a wholesale investor for one investment or service and as a retail investor for another.
When you may be treated as a wholesale investor
For example, you may be treated as a wholesale investor if you:
- have net assets (the value of what you own, minus what you owe) of at least $2.5 million, or a gross income of at least $250,000 a year in each of the previous two financial years, as confirmed in a certificate from a qualified accountant
- invest $500,000 or more in certain financial products
- in some circumstances, have enough previous investing experience for a business that holds an Australian financial services licence to assess you as a sophisticated investor. The business must have reasonable grounds for its assessment and give you written reasons. You must also sign an acknowledgement about the protections you will not receive.
You may also hear the term “sophisticated investor”. This term is used in different ways under the law. What it means, and which protections apply, depend on the investment or financial service. Ask the provider which legal test it is relying on and what this means for you.
Being offered a product as a wholesale investor is not a sign that an investment is safe, suitable or likely to perform well. Being wealthy does not automatically make someone an experienced investor.
What protections you may lose as a wholesale investor
The protections you may lose as a wholesale investor will depend on the financial product or service, and may include:
Information about the investment or service. The provider may not have to give you some documents that retail investors receive. For example, depending on the investment or service, you may not receive a prospectus, Product Disclosure Statement (PDS) or Financial Services Guide (FSG). A prospectus or PDS explains an investment, including its risks, fees and costs. An FSG explains the services a business provides, how it is paid and how it handles complaints.
Rules about how products are sold. Some financial products offered to retail investors must have a target market determination (TMD), which describes the types of consumers the product is designed for. The rules aim to reduce the risk of these products being sold to consumers they are not designed for. These protections do not apply when the product is offered to you as a wholesale investor.
Financial advice protections. If you receive personal financial advice (advice that takes account of your circumstances), some protections that apply to retail investors may not apply. These include legal requirements for your adviser to act in your best interests, make sure the advice is appropriate and prioritise your interests if their interests conflict with yours.
Help with complaints. You may not be able to take a complaint to the Australian Financial Complaints Authority (AFCA). AFCA provides a free, independent service to help resolve eligible complaints about financial products and services. Contact AFCA to check whether it can consider your complaint, including if you think you have been wrongly treated as a wholesale investor. If AFCA cannot consider your complaint, you may need to consider other options to resolve it, such as legal action at your own expense.
Other safeguards. Depending on the product, protections such as cooling-off periods (time to cancel certain purchases), restrictions on unsolicited sales and regular investment statements may not apply.
Investments only offered to wholesale investors
Some investments and financial services are only offered to wholesale investors.
These can include certain private credit, private equity, venture capital and managed fund investments.
Being available only to wholesale investors does not make an investment better or safer. Some wholesale investments can be complex, difficult to compare or difficult to sell or withdraw from. In some cases, retail investment products let you invest in similar types of assets with additional consumer protections.
What to ask before investing
Before investing as a wholesale investor, ask the provider:
- why are you treating me as a wholesale investor, and which legal requirement do I meet?
- is this investment or service available to me as a retail investor?
- what protections will I lose?
- what information are you not required to give me that a retail investor would receive?
- can I still make a complaint to AFCA?
- what fees will I pay?
- when and how can I get my money back?
- how could I make or lose money from this investment?
- does this investment fit my goals and the amount of risk I am comfortable with?
- are there retail investment options that could meet similar goals while giving me more consumer protections?
If you're unsure what being treated as a wholesale investor means for you, consider getting independent financial advice before investing.
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