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
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.
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.
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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