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Investment manager has 'grave concerns' over increasing wholesale threshold

By Keith Ford
3 minute read

A specialist wholesale investment manager has argued increasing the wholesale investor threshold would lessen competition.

In a submission to the parliamentary joint committee on corporations and financial services inquiry into the wholesale investor and wholesale client tests, Tobias Lewis, managing director at Marquette Properties said the proposed changes are “drastically inconsistent with the desires of our clients and many aspirational Australians looking to build wealth”.

There has been considerable speculation that the threshold to qualify as a wholesale investor would be increased from $2.5 million in net assets to $4.5 million, despite Financial Services Minister Stephen Jones denying that any decision has been reached.

Arguing against the increase, Lewis said he has “grave concerns for our investors, our business, and our industry”.

“The reported intention to increase the wholesale investor threshold from its current $2.5 million net assets level to more than $4.5 million would have devasting effects on our existing investor base, our assets and our capacity as a business going forward,” the submission said.

“We have built our business over the last 14 years on the basis of our successful track record of achieving strong returns for all of our wholesale clients. The proposed changes would dramatically alter how we operate and service our investor base, as well as our existing investor’s current holdings.

“For example, the staff within our own business would no longer qualify for wholesale designation under the changes.”

Lewis added that the proposed reforms would be harmful as a large number of existing wholesale investors would be disadvantaged by being “prohibited from participating in investments that they have enjoyed in the past”.

“Competition would be significantly lessened and ‘the top end of town’ will be benefited by driving out smaller firms; and the non-bank lending sector that provides significant funding to Australian businesses would be starved of funds,” the submission said.

“We are responsible managers of our investor’s funds and we, ourselves, are hardworking, tax paying members of this industry. We do not want our investors or ourselves punished through no fault of our own.”

The inquiry was announced last week and according to the terms of reference, it will review the current wholesale investor and client tests, including the “legal requirements, identification of all contexts in which the tests are relevant, the consequences of an investor/client meeting the relevant test, and the application of the tests in practice”.

It also said it would examine the historical development of the tests in Australia, consider previous reviews and inquiries, and look at comparable overseas jurisdictions, including any proposed or recent changes to tests used in similar contexts.

The committee has called for written submissions, with any stakeholders having until 15 May 2024 to make a submission.

Research undertaken by PwC and Data Analysis Australia, on behalf of the Financial Services Council (FSC), projected that almost 20 per cent of Australian households would be eligible to buy wholesale products without retail consumer protections in less than a decade.

According to the FSC, this would leave Australian investors potentially vulnerable due to not properly understanding the associated financial risks.

In order to reduce the number of households that would meet the threshold, the FSC has proposed a $5 million net asset threshold for the wholesale investor test, which it said would bring the number of Australian households eligible back down to 3.1 per cent.

“The increase in property prices in the past two decades since the threshold was implemented has contributed to more Australians being classified as wholesale investors because of the increase in value of the family home,” said FSC chief executive Blake Briggs.