Wholesale Investors: A Balancing Act Between Flexibility and Protection

The wholesale investor regime is a key element of New Zealand’s financial markets framework. It sits alongside our retail investor regime; both terms are elements of specific investor jargon that many individual investors would not even think about!

Retail investments are those designed for the general public. They are governed (and protected) by the Financial Markets Conduct Act (FMCA), which contains specific governance, disclosure and supervisory requirements. They include all listed companies on a regulated exchange (like NZX), KiwiSaver funds and most funds offered by wealth managers.

Wholesale investments do not carry any protection under the FMCA, but play a key role in developing companies for an eventual listing or providing capital for businesses that are unlikely to be well-supported in a public market or lack the scale to do so.

The criteria for wholesale investors are designed to balance investor protection with the flexibility needed for capital to flow freely into productive enterprise. Recent case law resulting from a case taken by the Financial Markets Authority (FMA) has clarified how this balance operates in practice, but also raised questions about whether the pendulum has swung too far toward issuers of capital.

What Makes an Investor “Wholesale”?

While retail investors receive protections under the FMCA, wholesale investors are presumed to have sufficient resources, experience or professional advice to fend for themselves.

There are several ways an investor can qualify as wholesale:

1. Investment Business Test: The investor is in the business of investing (e.g., fund managers or financial advisers).
2. Large Investor Test: The investor has at least $5 million in net assets or turnover.
3. Investment Activity Test: The investor has carried out a transaction over $1 million, or holds over $1 million in financial products.
4. Eligible Investor Certificate: A self-certification process, confirmed by a lawyer, accountant, or financial adviser.
5. Other Categories: Government entities, ACC
6. Large-scale offers: A company offering investment at a minimum level of $750,000 per investor is considered a wholesale offer.

Each pathway assumes that wealth or experience equates to sophistication — but as the New Zealand Shareholders’ Association (NZSA) points out, that assumption doesn’t always hold true. But while wealth may not relate to sophistication, at a level of $5 million net assets, the threshold is high enough that at the very least, we can reasonably assume the investor can access proper advice.

The more problematic element is the Eligible Investor Certificate. NZSA supports its inclusion, as this provides a means for highly capable individuals to invest in wholesale markets who may not meet wealth criteria. However, it relies heavily on both the conduct of the “confirmer” and appropriate enforcement by the FMA.

A More Protective Regime — in theory

Despite NZSA concerns, we also note that compared to other jurisdictions, New Zealand’s regime is amongst the most protective of individual investors.

Australia relies almost entirely on wealth thresholds while the UK combines wealth and self-certification but does not require external confirmation. The US and Canada largely follow wealth-only routes, with limited professional exceptions.

New Zealand’s “confirmer” step (where a professional must verify the self-certification) adds an extra layer of oversight. That design acknowledges that capability is not always visible on paper, and seeks to inject a measure of professional judgment.

Case Law: The Fitzgerald Decision

Recent court proceedings (commonly referred to as the Fitzgerald case) have clarified – and arguably diluted – this confirmer’s role. This has stemmed from an inherent ambiguity in the legislation, which had previously been applied in practice as confirmer’s taking all reasonable steps to ensure that statements made by the investor on the eligible investor certificate were correct.

The court, however, believed that this was not the original intent of the legislation, holding that:

• Certificates must state the grounds for wholesale status, but need not provide detailed evidence.
• The confirmer’s duty is “negative assurance”: they must have no reason to believe the investor’s statement is incorrect.
• Offerors need only check for formal validity, not substance.
• Certificates are invalid only if the stated grounds are plainly deficient or incapable of supporting eligibility.

In short, confirmers are no longer required to actively verify the investor’s sophistication — merely to ensure there is no obvious reason to doubt it. NZSA draws an analogy to auditing standards: the bar has shifted from ‘reasonable assurance’ to ‘limited assurance’.

The decision has clarified the law – but at a lower standard than many expected. Confirmers don’t have to be convinced, only unconcerned.

The Implications for Investors

For investors, this change underscores the need for self-awareness. Being “wholesale” removes access to key safeguards: no product disclosure statements, no cooling-off rights, and fewer remedies if things go wrong. That’s fine for those with genuine experience and risk appetite, but perilous for others.

The Du Val situation, where a number of self-certified “eligible investors” suffered significant losses and the company was later placed into statutory management, highlights these dangers. Many of those investors likely believed they were adequately informed — but the system, even under the previous interpretation, proved inadequate to protect them.

Wholesale investments represent a power imbalance. If the rules allow investors who lack the means or skills to be classed as wholesale investors, the issue isn’t just about ‘fault’ – it’s structural. If we had legislation that let pedestrians walk down the centre lane of a motorway, it is still not a good idea to do so, even if the rules allow it.

The NZSA Perspective

NZSA believes the regime should maintain its current multi-limbed structure, but with stronger enforcement. The Association supports the entrepreneurial intent behind wholesale markets, but we are concerned that without robust oversight, it risks becoming a loophole for predatory offers.

Private capital plays a critical role in developing Kiwi enterprise, but enforcement and accountability must keep pace. The ball is now back in Parliament’s court when it comes to looking at the intent of the wholesale regime. If NZSA sees increasing issues caused by the decision, we’ll likely be advocating Government to strengthen wholesale investor guardrails.

Conduct of wholesale offerors is also important; it is a source of ongoing frustration that we continue to see wholesale offers marketed via social media platforms or mass circulation daily newspapers. At a point where an offeror is marketing via mass consumer channels, it is questionable whether the offer is really targeted solely at wholesale investors. However, there is no ‘conduct’ test in New Zealand’s legislation to prevent this.

Steps Investors Should Take

For those considering wholesale offers:

1. Know what you’re signing. Understand that a wholesale certificate strips away disclosure protections.
2. Be honest in your self-assessment. If you lack direct investment experience, think twice before certifying yourself as eligible.
3. Check the confirmer’s approach. A genuine professional (regardless of the court’s decision) is likely to discuss your experience and risk understanding, not just sign the form.
4. Seek independent advice. Even if you qualify, use professional judgment to validate the opportunity.
5. Report concerns. If you suspect misuse of the wholesale rules, notify the FMA.

The balance between issuer flexibility and investor protection is delicate; NZSA and others will be interested in observing how the prevalence of wholesale investment is affected by the court’s decision.

For now, the message is clear: the system works only if everyone (investors, confirmers, and regulators) plays their part responsibly and effectively.

Oliver Mander