• Mayfair 101

Wholesale Investor Rules Don’t Need Changing

Updated: Apr 8, 2020

Source: Nestegg, 22 March 2020

An overlooked implication of raising the wholesale investor threshold is the impact it would have on retirees, SMSFs and other investors reliant on an income for their livelihood.

Investment products offered to wholesale investors in Australia could become out of reach for many should regulations result in an increased threshold to become eligible to invest in such products. This could spell disaster for many existing wholesale investors who need to access income-producing investment products to sustain their income stream.

The impact of low interest rates on bank deposits has forced many wholesale investors to look beyond traditional financial institutions to those non-bank finance companies that are filling the growing credit gap left by restrictive bank lending policies. A handful of commentators have suggested increasing the threshold, arguing a large portion of investors that may currently be classified as wholesale, may not have the financial literacy to understand the products they invest in, and therefore may be taking more risk than they should.

However, when you consider the steps required to establish a self-managed superannuation fund, of which there are thousands in Australia, it suggests most fund managers would be qualified to make an investment. An increase in the wholesale investor threshold would potentially render many self-managed superannuation funds defunct or a considerably smaller range of investment options to choose from.

Any changes to regulation would stifle the ability of investors to access regulated financial products and result in less competition for traditional investment companies and banks. Increasing the wholesale investor threshold would mean the average self-funded retiree would be unable to invest funds in finance companies that are filling the enormous credit gap left by the banks. It simply doesn’t make sense, particularly at a time where investors are struggling to earn 2 per cent per annum on their idle funds.

James Mawhinney, Managing Director, Mayfair 101

"We often have to turn away investors with AU$400,000-AU$450,000 to invest who have done their homework and want to invest with us, simply because they don’t meet the AU$2.5 million net assets or AU$250,000 per year income test. The threshold is already high, and if this was increased to levels that only institutional investors can participate in, you will wipe out an entire market that is providing a more equitable distribution of capital between investors and businesses needing access to funding", said Mayfair 101 Managing Director, James Mawhinney.

If an increase in the wholesale investor threshold was to be put to Parliament, it would no doubt be met with considerable resistance from existing wholesale investors and the rapidly growing non-bank finance company industry. Given the challenges banks are currently facing, it begs the question of whether the traditional institutions should be protected, or retaining the existing wholesale investor threshold encourages fair competition, a re-allocation of capital and provides investors with the choice of seeking higher returns.

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This website is published by Online Investments Pty Ltd (t/a ‘Mayfair 101’) (ABN 981 34 785 890, AFSL Auth. Rep. No. 001 274 568 of Quattro Capital Group Pty Ltd (ABN 88 128 914 965, AFSL 334653)). It is provided by way of general information only, is subject to change, and may not be relied upon by any person. Mayfair 101 is an Australia-based provider of investment and corporate advisory services, including funds management, asset management, capital raising, corporate advisory, mergers and acquisitions advisory, and direct investment, either directly or through members of its corporate group. Mayfair 101’s authority under its appointment by Quattro Capital Group Pty Ltd under the Corporations Act 2001 (Cth) is limited to the provision of financial services to wholesale clients in Australia only, including general (not personal) financial product advice relating to deposit products, foreign exchange contracts, derivatives, interests in managed investment schemes and securities. Mayfair 101 and the members of its corporate group may have a beneficial interest in the financial services and products of that group. Mayfair 101 provides advice in relation to financial products of its corporate group only, and terms, conditions and risks apply in respect of such financial products. Such financial products are not a comprehensive range of all possible investment products, are not bank deposits and (like most investments) may be subject to greater risk of capital loss and negative returns than traditional investment products. Prospective investors are strongly encouraged to seek independent professional legal, financial, accounting, taxation and valuation advice before deciding whether they consider any financial products to be suitable for them, and to request any relevant disclosure documents (such as Product Disclosure Statements and/or Information Memoranda) to ensure that they are fully informed before making any investment decision. Past performance should not be relied on as an indicator of future performance. The financial products offered by Mayfair 101 and its corporate group are available to wholesale clients resident in Australia only. Mayfair 101 does not accept investment from retail clients, non-wholesale clients or residents of countries other than Australia. Mayfair 101 and the members of its corporate group are not deposit-taking institutions in Australia or elsewhere and are not authorised to conduct banking activities under the Banking Act 1959 (Cth).

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