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What is a retail investor?

Wednesday, 7th Feb 2018

Property syndicates, investment types that utilise pooled funds to purchase or develop property, are generally offered to two types of investors, either wholesale or retail. These types of investment opportunities are less commonly open to retail clients as the law necessitates more onerous compliance requirements for funds dealing with these investors.

The intent of the distinction is to protect individuals who don’t meet the wholesale investor requirements and may not have the financial flexibility or capacity to take on higher risk investments. In essence, all investors are retail investors unless they meet the wholesale investor criteria, in which case they would have greater access to a wider range and sometimes more complex financial products.

The notable differences for retail investors can include:

Paperwork requirements

Retail investors must be provided with a Product Disclosure Statement (PDS) that includes material on the product’s key features, fees, commissions, benefits, risks and complaints handling procedures, something a wholesale investor might choose to forgo in favour of a more simplistic Information Memorandum.

Greater investor protection

The Future of Financial Advice (FOFA) legislation is intended to improve the confidence and trust of Australian retail investors in the financial services industry, providing protection from poor financial advice and ensuring the availability, accessibility and affordability of high quality financial advisors. Wholesale investors have less protection in these areas.

Increased governance requirements

The Australian Securities & Investments Commission (ASIC) requires funds ope

n to retail investors to meet increased governance requirements, including an approved constitution and compliance plan, an authorisation for licensee on the investment type, a mandated net tangible assets requirement, external board of directors, annual audited accounts to be lodged with ASIC and custody requirements. Wholesale investor funds are permitted to vary these requirements as part of the trust deed

The increased legislation alone can add a bureaucratic and economic cost to investment types such as property syndicates open to retail investors. However, property syndicates that are able to meet the legislative requirements for retail investors can still provide the benefits of a pooled investment asset that is generally lower-risk (compared to wholesale investment opportunities) to clients that meet this profile.

If you wish to learn more about property syndicates and pooled investments, our sister company Mair Property Funds has published an excellent guide to getting started in commercial property through property syndicates. You can download the ebook here.

Please note: the information in this article pertains to General Advice only. Momentum Wealth and its affiliated entities are not solicitors, accountants or financial planners. While all information is provided in good faith, you should seek your own independent legal, accounting and financial advice in relation to any transaction you undertake.