Seven property investment firms officially warned for overstepping boundaries

The FMA’s has issued formal warnings to seven wholesale funds using non-compliant eligible investor certificates: 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.

A review of wholesale investments into property-related offers was launched by the FMA after an increase in complaints and concerns about how such wholesale offers were being promoted, and whether the appropriate investors were being targeted and accepted.

The most significant findings related to the use, confirmation, and acceptance, of eligible investor certificates.

The FMA found some investor certificates were not confirmed by financial advisers, accountants or lawyers, as required, while other certificates were confirmed - and accepted by wholesale property investment firms - 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”.

The FMA asked for information on advertising, offer documents and process documentation from f23 firms across the industry and seven warnings have been issued. It will be making referrals to the relevant professional lawyer, accountant and financial adviser bodies about the firms that confirmed the deficient eligible investor certificates.

The FMA also found several market practices which it considers may increase the risk of an investor being 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 (for example, promotions for wholesale property development projects targeting advertising at people using search terms such as “Sharesies” and “term deposit”);
• 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.

FMA acting director capital markets, Paul Gregory says the wholesale investor exclusion is intended to allow wholesale property investment firms  to make offers to expert investors without having to provide the disclosure designed to inform and protect non-expert investors.

“However, our review 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 concerned with the conduct of some of the firms and the lawyers, accountants and financial advisers confirming eligible investor certificates,” says Gregory.

Alongside the warnings, the FMA has 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, can help improve how they promote offers and target and accept investors,” says Gregory.

He says 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.