"You're largely on your own" - that's the Financial Markets Authority director of investment management's warning to people considering putting money into wholesale schemes.
Paul Gregory spoke to the Herald today after the authority told Auckland property developer and investor Du Val to remove advertising for a mortgage fund which gave the impression it was low risk.
Offers to wholesale and eligible investors can have far fewer protections than other types of offers, Gregory warned, so people need to consider them harder and ask more questions.
Kenyon Clarke, Du Val chief executive, said today his business raised $20 million via a mortgage offer to wholesale investors and no one had complained. Du Val has refused to supply the Herald with a copy of the information memorandum for that offer.
But the authority said Du Val said its fund had "the best of both worlds", with high security and high return and comparing it favourably with bank term deposits but without a balanced view of the risks.
Gregory warned people to take many steps before they invested money in wholesale schemes, which differ markedly from retail schemes.
"In a regulatory sense, you're largely on your own," Gregory warned of wholesale offers.
People can self-certify that they have sufficient experience to put money into such wholesale schemes, he explained.
"This is about you saying you can do this. You can assess the merits of the transaction. You can assess how much information you need about the transaction and you can assess how adequate the information being provided to you is."
Wholesale investment offers can promise attractive returns but don't have the same protections as retail investment offers, he stressed.
Such offers are aimed at experienced investors, often with large sums of money to invest. Unless you are a very experienced investor, you should proceed with caution and talk to a financial adviser before investing in a wholesale offer, Gregory stressed.
Investing in a wholesale offer may mean people don't get a product disclosure statement which tells of the risks and features of the investment in clear, concise and effective language that is aimed at a prudent but non-expert investor. Such statements are not mandatory for wholesale offers.
The authority said today Du Val's statements about its mortgage fund breached fair dealing provisions because they gave the impression that the investment was low risk.
"In fact, property development including associated finance is inherently risky," the FMA said today.
Gregory said that the mortgage fund was not the only one to concern the authority. Some agricultural land offers were also to wholesale investors and the authority had said some months ago it planned to "take a broad look at this area".
He asked whether people with $250,000 or $750,000 if putting their money into a wholesale fund was in their best interests: "Does that really make you experienced or sophisticated? Or to understand about property development?"
People should ask if they were happy with lower thresholds in terms of information and protections.
"What's so great about this investment that I'm prepared to do that? Do I have to sign anything to get the detail and if so, why? Are there more risks? With property development, of course, there are. How easy is it for me to get my money out? Is my money locked up for a certain period? There's a lot of really fundamental questions people should ask themselves if they want to participate in a wholesale offer," Gregory said.
If they had any concerns around these issues "they should just walk away".
Owen Culliney, a Du Val Capital Partners director, said today: "The FMA has determined that some of Du Val Group's historic social media advertising relating to wholesale investment products, which invited potential investors to simply make an enquiry, did not comply with Section 19 of the FMC Act."
Culliney said the business was "disappointed by the FMA's approach to the use of social media advertising", saying it is "out of step with other jurisdictions and modern communication and marketing channels".
• More information is at the FMA's website under "investments for wholesale and eligible investors".