Most of us likely understand wholesale to mean ‘cheaper than retail’.  Wholesale stores usually sell to other stores rather than directly to customers, so buying at wholesale price typically means saving a few bucks on the retail markup that stores would use to make their profit.

Concerning investments it is a different matter, and one that has been getting a few companies in hot water recently.

Wholesale investors, broadly speaking, are people or organisations who have sufficient previous investing experience that they do not require disclosure.  This can be for all offers of financial products, or just particular offers.[i]

In essence, they bypass the retail safety provisions.  If they were to seek advice from a financial adviser, there would be no need for the usual comprehensive advice process.

To meet the wholesale criteria an investor needs to be certified.  This must be signed off by a lawyer, accountant and financial adviser – there is some oversight in this sense, as these professions have their own stringent regulations and oversight bodies.  In recent years some certification has come into question as tales of woe reach the media.

Investing in a wholesale offer may mean you miss out on a product disclosure statement (PDS), which lays out the risks and features in clear language aimed at non-expert investors.  The firm fronting the offer may not be licensed by the FMA, which means no monitoring by the regulator.  You may not have access to a free, independent dispute resolution if things go wrong, and you may not have a licensed supervisor (entity looking after your interests as an investor) in the case of debt securities such as bonds and managed investment schemes.

 

Notable mentions so far include Williams Corporation, Black Robin, and Du Val Capital Partners. Du Val was warned by the FMA in 2023 regarding their mortgage fund.[ii]

A promotion on LinkedIn around this time claimed 10% return, with a minimum investment of $250k.  This was targeting people who were not sophisticated wholesale investors – rather they were going after whoever had the money to invest, with an offer that seemed too good to refuse.

A mentor has always told me, “It’s not the sale price that is important – it’s the fine print.”

Unfortunately for the Du Val investors, many of them had to learn that the hard way.  Du Val suspended the cash distributions, which had featured prominently, because the board could not approve them and ensure the fund was able to meet its other obligations.  In other words; Du Val hit financial troubles, misled investors about the situation and their options, and were forced into transparency by their second FMA warning (the first being in 2022). The company was technically insolvent in September 2023 with -$24.1m in equity.[iii]

 

As their company floundered, co-founders of Du Val were filming a reality TV show ‘The Property Investors’ about their lavish lifestyle; supposedly this will be streaming sometime in 2024.

Black Robin was served a formal warning in 2022 after the FMA found they had failed to give disclosures to their investors, relying on the wholesale investor exclusion in circumstances the FMA found they were not entitled to.[iv]  Again, they were also targeting non-expert investors with offers of a sure thing – which is not what wholesale investment is meant to be.

Similarly to Du Val, Black Robin failed to pay investors their ‘guaranteed’ cash distribution.  The company placed two of its companies into liquidation in 2023.[v]

 

If a financial product sounds too good to be true, it usually is.

‘Sure things’ don’t exist, and if they did, they wouldn’t need to be paving their way with promises of returns above 10% with no costs or fees.  These kinds of promises are the proverbial carrot, dangling to tempt people into using their life savings to invest in wholesale property investment.

This is not a one-off

There will always be someone trying it on, and I know from seeing things pop up on my social feeds or in print ads, that other companies are still making similar claims. There’s one I’ve seen recently offering to pay your legal and accounting fees up to $2500 to get you in the door.  Obligation free, of course, but accompanied by flashy fixed returns for a minimum investment of $100k.  Their big claim is that they’ve never missed a payment, nor had a single loss of investor capital.

According to their registration details on the Financial Services Provider Register and the New Zealand Business Number Register, the company didn’t exist before 2022. Call me old-fashioned but if I was going to go with an opportunity based on its past success (which is not a stellar investment strategy by any means), I would want more than two years of evidence.

 

Diversify your investments

If you simply must invest in something like this, don’t bet the farm.  The future is not guaranteed and get-rich-quick schemes rarely pay out in the long run.

Your investment portfolio should be diversified globally, as well as across asset classes and industries, to cushion you from market volatility and capture returns over time.

 

Stick with the tried and true

For actual evidence-based investment planning, you are much better off sitting down for a chat with your local fiduciary.  Unlike the grey area of wholesale investment, fiduciaries are obligated to provide you with a full disclosure and make sure you understand any and all risks.

They won’t pay your legal fees to get you in the door – but then again, a fiduciary acting in your best interest won’t need to.

 

by Nick Stewart (CEO and Financial Adviser at Stewart Group)

·         Nick Stewart (Ngāi Tahu, Ngāti Huirapa, Ngāti Māmoe, Ngāti Waitaha) is a Financial Adviser and CEO at Stewart Group, a Hawke's Bay-based CEFEX & BCorp certified financial planning and advisory firm. Stewart Group provides personal fiduciary services, Wealth Management, Risk Insurance & KiwiSaver scheme solutions. Article no. 347.

·         The information provided, or any opinions expressed in this article, are of a general nature only and should not be construed or relied on as a recommendation to invest in a financial product or class of financial products. You should seek financial advice specific to your circumstances from a Financial Adviser before making any financial decisions. A disclosure statement can be obtained free of charge by calling 0800 878 961 or visit our website, www.stewartgroup.co.nz

 

 

[i] https://www.fma.govt.nz/consumer/investing/types-of-investments/wholesale-investors/#:~:text=Wholesale%20investors%20are%20defined%20in,just%20for%20a%20particular%20offer

[ii] https://www.fma.govt.nz/news/all-releases/media-releases/fma-warns-du-val-capital-partners-limited-over-misleading-or-deceptive-statements-to-investors-in-the-du-val-mortgage-fund/

[iii] https://www.nzherald.co.nz/business/du-val-group-was-technically-insolvent-last-september/X2HXIM5S75DD3INAYFOBUILEHE/

[iv] https://www.fma.govt.nz/about-us/enforcement/cases/formal-warning-black-robin-westwood-terraces/

[v] https://www.odt.co.nz/business/fma-issues-warnings-property-investment-firms