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Ross collapse sparks wholesale debate

The collapse of Ross Asset Management will feed into the debate over whether wealthy clients require less protection than other investors, a financial services consultant says.

Wednesday, February 27th 2013, 8:10AM 4 Comments

by Niko Kloeten

An exemption in the Financial Advisers Act allows advisers with clients who are deemed to be “wholesale” investors to operate without having to become Authorised Financial Advisers (AFAs).

There are a number of different types of clients who are considered “wholesale” rather than retail under the Financial Advisers Act, including those with net assets of $2 million or more or annual gross income of $200,000 or more for each of the last two financial years.

There are also "eligible investors" who must certify they have “sufficient knowledge, skills or experience in financial matters to assess the value and risks of financial products and the merits of those services”.

Angus Dale-Jones of Knax Consulting said the Financial Markets Conduct Bill, which recently passed its second reading, had slightly tighter requirements around eligible investor status and some increased financial thresholds.

Dale-Jones said the distinction between wholesale and retail investors was a long-standing one that made sense in terms of improving ease of business for the financial industry, with the ever-present question being where the dividing line should be.

“The fundamental logic is that when you are dealing with skilled people, or who are skilled investors, from a regulatory point of view it might not be necessary to give them all the protection afforded to mum and dad investors,” he said.

“The problem arises when people distort that purpose and try to shoe-horn their clients under the wholesale banner.”

The changes to the wholesale definition and to the DIMS (Discretionary Investment Management Service) regime were proposed before Ross Asset Management hit the headlines.

Although David Ross was an AFA, Dale-Jones said the collapse of RAM would add to the debate over whether wealthy investors were more savvy, or required less protection, than other investors.

“With companies like RAM often a significant portion of their clients are wholesale investors,” he said.  “It’s a public policy issue; they might not necessarily want to be treated like retail investors.”

Niko Kloeten can be contacted at niko@goodreturns.co.nz

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Comments from our readers

On 27 February 2013 at 8:41 am Actual wholesale investor said:
Hubbard and others have used the 'wholesale' investor excuse to try and mitigate their own responsibility to investors. Unfortunately the number of retired farmers etc who have lost fortunes will continue to grow until a greater level of robustness is put around the definition of 'wholesale'. That should not be solely based on a minimum dollar value.
On 27 February 2013 at 10:42 am The Captain said:
Rather than just increasing the dollar asset value height of the qualifying bar and effectively making access to some of the better risk adjusted and innovative products even more remote would it not be better to tighten up the oversight requirements ensuring that anyone taking in funds from the public provide an independent trustee and audit and valuation reports semi-annually and perhaps even go further to require issuers/managers to get an independent report that summarizes the fund offering and gives a brief summary of where the risks lie against the targeted/expected investment outcome.
Current legislation has through legal advice to issuers over the years has become cumbersome and confusing for the Investor to form get a clear picture of exactly where their money is being invested and the real value of those underlying investments. Typically the risk sections in the offering documents list every risk without any informed commentary as to quantifying which of those risks is really relevant to the proposed offering. All this confusion I believe results in Investor insensitivity the document being glossed over.
It should be about providing true transparency, informed independent review, good oversight and access for all.
On 27 February 2013 at 12:33 pm btw said:
To The Captain,
Bear in mind, you're just describing the regulatory regime that applied to the 27 odd fincos that collapsed a few years ago. You're not going to be protected by independent appointments as long as you have statutory trustees of the ilk of Perpetual or Covenant (both recently reaffirmed as acceptable by the FMA). The whole independent trustee regulatory model is fundamentally flawed (in my opinion) in relying on private profit generated entities such as trustee corporations to act as pseudo-regulators.
On 27 February 2013 at 10:44 pm Anthony Edmonds said:
I think where the end investor is an individual, then the requirements should be the same, regardless of how much they have to invest.

Abolish the concept that some individuals are deemed to be more knowledgeable than others, simply because they are wealthy.

Knowledge about investment matters and the level of an individual's wealth are not necessarily correlated (if they were/might be, then all the people reading this would obviously be wealthy........)

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Lender Flt 1yr 2yr 3yr
AMP Home Loans 6.99 5.99 6.29 6.60
AMP Home Loans $200k+ 6.89 5.89 6.19 6.50
AMP Home Loans LVR <80% - - 5.85 6.29
ANZ ▲6.74 6.05 6.49 6.65
ANZ LVR > 90 ▲6.74 6.55 6.99 7.15
ANZ Special - - 6.09 -
ASB Bank ▲6.75 6.09 6.40 6.65
ASB Bank Special - 5.95 - -
BankDirect ▲6.75 6.09 6.99 6.65
BankDirect Special - 5.95 - -
BNZ - Classic - - - 6.25
Lender Flt 1yr 2yr 3yr
BNZ - GlobalPlus ▲6.74 5.99 6.39 6.59
BNZ - Mortgage One ▲7.15 - - -
BNZ - Rapid Repay ▲6.74 - - -
BNZ - Std, FlyBuys ▲6.74 5.99 6.39 6.59
BNZ - TotalMoney ▲6.74 - - -
Credit Union Auckland 6.70 - - -
Credit Union Baywide ▲6.45 5.90 6.50 -
Credit Union North 6.45 - - -
Credit Union South 5.75 - - -
eMortgage 6.04 6.15 6.69 7.19
Finance Direct 6.10 6.45 6.69 7.10
Lender Flt 1yr 2yr 3yr
First Credit Union 6.45 - - -
General Finance 5.95 6.25 6.50 7.10
HBS Bank 6.15 5.85 6.20 6.25
HBS Special - - - 5.95
Heartland 6.45 6.75 7.00 7.60
Heretaunga Building Society 6.25 5.85 6.50 -
Housing NZ Corp 6.50 6.00 6.30 6.60
HSBC Premier 6.59 5.95 5.99 6.25
HSBC Premier LVR > 80% - - - -
HSBC Special - 5.85 5.85 5.85
Kiwibank 6.40 5.99 6.29 6.29
Lender Flt 1yr 2yr 3yr
Kiwibank - Capped 5.65 6.50 - -
Kiwibank - Offset 6.30 - - -
Kiwibank LVR > 80% - - 5.85 6.29
Liberty 5.64 - - -
Napier Building Society 5.80 6.00 6.70 -
Nelson Building Society ▲6.95 ▲6.15 6.60 -
NZ Home Loans 6.35 6.09 6.40 6.65
Perpetual Trust 7.70 - - -
RESIMAC - lo doc 7.34 7.06 7.38 7.82
RESIMAC LVR < 80% 6.34 6.06 6.38 6.82
RESIMAC LVR < 85% 7.34 7.06 7.38 7.82
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RESIMAC LVR < 90% 8.34 8.06 8.38 8.82
SBS Bank 6.15 5.85 6.20 6.25
SBS Bank Special - - - 5.95
Silver Fern 5.95 6.10 6.55 7.05
Sovereign ▲6.85 6.09 6.40 6.65
Sovereign Special - 5.95 - -
The Co-operative Bank 6.45 6.00 6.00 6.25
TSB Bank 6.49 6.00 6.19 6.60
TSB Special - - 5.80 -
Wairarapa Building Society 6.20 5.75 5.95 -
Westpac ▲6.59 6.09 6.39 6.65
Lender Flt 1yr 2yr 3yr
Westpac - Capped rates - 6.49 6.99 -
Westpac - Offset ▲6.59 - - -
Westpac Special - 5.95 6.09 -
Median 6.50 6.00 6.39 6.60

Last updated: 29 July 2014 6:33am

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