This after discovering non-compliant practices
The Financial Markets Authority (FMA) has issued seven formal warnings after finding several conduct concerns in the wholesale investment sector.
Read more: FMA shakes up its enterprise leadership team
The agency carried out a review of wholesale investments into property-related offers following a rise in complaints about how such offers were being promoted, and whether the appropriate investors were being targeted and accepted.
FMA issued warnings to Black Robin Equity and Westwood Terraces BRE, Du Val Capital Partners and Du Val BTR GP, E+O Property Syndication, Jasper NZ Investments, Provincia Property Fund, Williams Corporation Capital Partnership GP, and Wolfbrook Capital for using non-compliant eligible investor certificates.
The FMA review found that some certificates were not confirmed by financial advisers, accountants, or lawyers, as was required, while others were confirmed and accepted by offerors with no grounds or the grounds did not relate to the matters certified. Insufficient grounds included the sale of a farm, owning a term deposit or KiwiSaver, having a rental property portfolio, making substantial profits from selling houses, and “experience in investment.”
Read next: FMA and RBNZ release finalised regulatory framework
The authority said it also found several practices in the market which may increase the risk an investor may be misled, including:
- offers promoted through a broad range of advertising channels, including through social media, rather than targeting experienced investors
- promotional material promoting high returns and low risk or ignoring risk
- offerors using digital advertising strategies, such as search optimisation that may target non-expert investors
- promotional materials that were not clear the offer was only available to wholesale investors
- some instances of aggressive or “hard-sell” techniques, although this did not appear to extend to investors being pressured to self-certify as eligible investors
“The wholesale investor exclusion is intended to allow offerors to make offers to expert investors without having to provide the disclosure designed to inform and protect non-expert investors,” said Paul Gregory, FMA acting director of capital markets. “However, our review has found practices in the market which have allowed this exclusion to extend to people with little or no investment experience, some citing KiwiSaver or term deposits as grounds for supporting their expertise. The FMA is highly concerned with the conduct of some offerors and the lawyers, accountants, and financial advisers confirming eligible investor certificates.”
FMA has also published a report on its findings, setting clear expectations for the industry, including when an eligible investor certificate is complete and can be relied on.
“The industry should consider how our findings, and the warnings arising from them, could help improve how they promote offers and target and accept investors,” Gregory said. “The FMA will continue to scrutinise the wholesale property investment sector, especially given the volatile market environment affected by rising interest rates and falling property prices.”
Gregory urged all investors to carefully consider their ability to understand and assess the risk of investments they are offered, or seek independent and professional advice, before signing an eligible investor certificate.
“Potential investors should be asking themselves, ‘Is 8%, 10% or even 15% a good return relative to the risk of the investment, and am I in a position to be able to properly assess that risk?’” he said. “And if that seems tough, perhaps the potential investor should get expert help or reconsider whether the investment is appropriate for them.”
