Warning: Think Before Signing Away 'Mum and Dad' Investor Rights

Media Release
5 May 2011

The Financial Markets Authority is warning investors against being classified as wholesale investors and losing retail 'mum and dad' investor rights and protections.

FMA's priority is increasing investor confidence in capital markets and increased protections are being phased in (by 1 July 2011) for retail investors. These include advisers being subject to professional conduct standards and disclosure requirements, and investors having the ability to complain to an independent dispute resolution scheme.

Advisers servicing only wholesale clients do not have to offer the same protections.

An investor recently complained about being asked to sign an 'eligible investor' document making him a wholesale client.

FMA Director of Financial Adviser Regulation, Mel Hewitson said the investor was right to be concerned.

Ms Hewitson said wholesale investors were defined in the Act to include local authorities and Crown entities, those who habitually invested money as part of their business as well as 'eligible investors' who certified themselves as knowledgeable.

"However, entities with net assets over a million dollars are also caught. That could quite easily be a farmer who has just sold the farm, or a retiring small business owner who places money in a trust or partnership entity - that is, the sort of person who may not have the type of detailed financial knowledge you might expect a typical 'wholesale' client to have," she said.

Investors who have been classified as wholesale clients have the ability to 'opt out' and be treated as a retail client if they choose, she said.

"Investors should think carefully about the consequences of becoming a wholesale client.

"This is why it's a requirement for investors who choose to become 'eligible investors' to certify this in writing, and why there are penalties for advisers who don't explain the consequences adequately."

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