3 Key Benefits of Being a Wholesale Investor
A wholesale investor is defined as anyone who meets one of the following three criteria:
You have net investable assets of $2.5 million or more
You had an income in excess of $250,000 in each of the last two taxation years
You are considering investing $500,000 or more into a single investment opportunity
Anyone who doesn’t meet at least one of these criteria is automatically considered to be a retail investor. If you do meet one or more of these criteria, you’ll need to have an accountant review your financial documents and certify you as a wholesale investor. Going through the process of becoming certified has several advantages, as we’ll see next.
Benefits of Being a Wholesale Investor
Preferential Rates - Once you’re deemed to be a wholesale investor, several new doors open up for you. For one, you’ll have access to preferential rates on many funds and investments, meaning you’ll pay less in fees than the average retail investor. As someone with a substantial amount of money to invest, fund companies and others seeking investment are eager to compete for your business.
Credit Ratings - Another advantage is that wholesale investors are given access to company credit ratings which are prevented by regulation from being given to retail investors. Because wholesale investors generally possess a higher degree of financial literacy than the average person, this information can be useful in determining when to invest funds in special opportunities presented by companies.
Special Access - This brings us to the third and most substantial benefit of being a wholesale investor, which is that you gain exclusive access to investment opportunities not available to the general public. Examples of such investment opportunities include pre-IPO shares, hedge funds and many Australian bonds, which are required to be issued only to wholesale and professional investors.
These investment opportunities may sometimes be offered at a discount; for example, a company looking to raise capital ahead of its IPO may offer shares at a discounted rate that is 20% below the fair market value to bring in a sufficient amount of capital to meet its needs.
Such investments also often carry with them the prospect of higher risk in exchange for potentially higher rewards; it will be up to you as a wholesale investor, however, to determine whether the opportunity is right for you.
Since wholesale investors are deemed to possess a certain level of financial knowledge and proficiency, companies issuing investments that are specifically focused toward wholesale investors are exempt from many of the regulations and restrictions that are designed to protect and provide sufficient information to retail clients. These can include:
Statement of Advice (SOA)
Financial Services Guide (FSG)
Disclosure of fees paid to a fund company when you invest in their fund
Information about the consequences of replacing one product with another
Access to company complaints handling procedures for clients
The logic behind this is that presumably you’ve done your own research as a wholesale investor and can make your own informed decisions about which opportunities you’d like to take advantage of. While this may seem like a drawback at first blush, in practice it often allows you to more swiftly take advantage of investment opportunities that present themselves.
Being a wholesale investor has its perks over being a retail investor. If you fit the criteria for becoming one, it’s worth considering; if nothing else, it might be worthwhile to see which doors open up for you as a result. Whether you choose to walk through one or not is entirely up to you, and you’re never obligated to do so.
The best advice for any investor, retail or wholesale, is to stick to investments that you can wrap your head around and understand fully, versus chasing the latest shiny object simply because it seems like the trendy thing to do.
This website contains general information only and is not intended to provide any person with financial advice. It does not take into account any person's (or class of persons) investment objectives, financial situation or particular needs, and should not be used as the basis for making investments.