“You are largely on your own” – warning from the financial market regulator to large investors
“You are largely on your own” – this is what the Director of Investment Management of the Financial Market Authority warns to people who are considering investing money in wholesale programs.
Paul Gregory spoke to the Herald today after the agency ordered Auckland real estate developer and investor Du Val to remove the advertisement for a mortgage fund that appeared to be of low risk.
Wholesale and legitimate investor offers can offer far less protection than other types of offers, Gregory warned, requiring people to scrutinize them harder and ask more questions.
Kenyon Clarke, Du Val CEO, said today that his company raised $ 20 million through a mortgage offer to major investors and no one has complained. Du Val has refused to provide the Herald with a copy of the information memorandum for this offer.
But the agency said Du Val said his fund had “the best of both worlds,” with high security and high yield, and compares it cheaply to bank term deposits but without a risk balance.
Gregory cautioned people to take many steps before investing money in wholesale systems that are very different from retail systems.
“In a regulatory sense, you are largely on your own,” warned Gregory of wholesale offers.
People can self-certify that they have sufficient experience to invest money in such wholesale schemes, he explained.
“The point here is that you say you can do this. You can assess the merits of the transaction. You can assess how much information you need about the transaction and how appropriate the information is provided to you.”
Wholesale investment offers can promise attractive returns, but they don’t offer the same level of protection as retail investment offers, he pointed out.
Such offers are aimed at experienced investors who often have to invest large sums of money. Unless you are a very experienced investor, you should proceed with caution and speak to a financial advisor before investing in a wholesale offering, stressed Gregory.
Investing in a wholesale offering can mean people will not receive a product disclosure statement that outlines the risks and characteristics of the investment in clear, concise, and effective language aimed at a prudent but inexperienced investor. Such information is not mandatory for wholesale offers.
The agency said today that Du Val’s statements about their mortgage fund violated fair dealing rules because they created the impression that the investment was a low risk investment.
“In fact, real estate development, including the associated financing, is inherently risky,” the FMA announced today.
Gregory said the mortgage fund wasn’t the only one worrying the agency. Some offers for agricultural land were also aimed at large investors, and the authority announced a few months ago that it would “look at this area comprehensively”.
He asked if people with $ 250,000 or $ 750,000 if they put their money in a wholesale fund are in their best interests, “Does this really make you experienced or sophisticated? Or do you understand anything about real estate development?”
People should ask if they are happy with lower information and protection thresholds.
“What is so great about this investment that I’m ready for it? Do I have to sign something to get the details and if so, why? Are there more risks? When it comes to real estate development, of course, is it for me to get my money out of it? Is my money blocked for a certain period of time? There are a lot of really basic questions people should be asking themselves when looking to partake in a wholesale offering, “said Gregory.
If you had any concerns about these issues, “just walk away”.
Owen Culliney, a director of Du Val Capital Partners, said today: “The FMA has noted that some of the Du Val Group’s historical social media advertisements related to wholesale investment products prompted potential investors to submit a simple request, did not comply with Section 19 of the FMC Act. “
Culliney said the company was “disappointed with the FMA’s approach to using social media advertising,” said it was “inconsistent with other legal systems and modern communication and marketing channels.”
• Further information can be found on the FMA website under “Investments for large customers and suitable investors”.