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Wholesale or Retail: Which Should My Fund Be?

The first decision for any new fund is whether it will take money from retail investors or only from wholesale investors. The answer decides your licence, your documents, your costs and how long it takes to launch. Most of the funds I have helped set up started as wholesale funds, and some later apply for a licence variation so that they can make a retail offer.

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Who counts as a wholesale investor

The Corporations Act 2001 treats an investor as wholesale, and so outside most retail protections, if one of these tests is met:

  • Product value test. The investor puts in at least $500,000 in the one product.
  • Individual wealth test. A qualified accountant certifies, within the previous two years, that the investor has net assets of at least $2.5 million or gross income of at least $250,000 a year in each of the previous two years.
  • Professional investor test. The investor is a licence holder, a superannuation fund with net assets of at least $10 million, a listed entity, or a person who controls at least $10 million.
  • Sophisticated investor test. The licence holder is satisfied, on reasonable grounds and in writing, that the investor has enough experience to assess the offer without a product disclosure statement.

What each choice means

Decision Wholesale fund Retail fund
Scheme registration Not required Must be registered with the regulator
Operator Licensed trustee, can be a proprietary company Responsible entity, must be a public company
Licence authorisations Deal in and operate the scheme for wholesale clients Deal in and operate a registered scheme for retail clients
Offer document Information memorandum, no prescribed content Product disclosure statement with prescribed content
Target market determination Not required Required
Constitution and compliance plan Constitution only, lodged nowhere Both, lodged with the regulator
Compliance committee Not required Required unless at least half the directors are external
Net tangible assets Licence financial requirements only $150,000 minimum now, rising from 1 July 2027
Complaints scheme Not required for wholesale only Membership of the Australian Financial Complaints Authority
Audit Financial statements only Financial statements and compliance plan audit
Time to launch Usually 4 to 6 months Usually 9 to 15 months, including a licence variation

The questions that decide it

  • How much will each investor put in? If most will invest $500,000 or more, or hold accountant's certificates, a wholesale fund works. If you want investors at $10,000 or $50,000, you need a retail fund.
  • How fast do you need to launch? A wholesale fund can be ready in a few months. A retail fund needs scheme registration and usually a licence variation.
  • Will you want to add a retail offer later? If yes, set up the wholesale fund so that its constitution and structure can be registered later without starting again.
  • Do you have, or can you afford, the capital? Responsible entities must hold net tangible assets and will need more from 1 July 2027.

A common path

Many managers start with a wholesale fund to build a track record, then register a feeder scheme or a new scheme for retail investors once they have two or three years of performance and the capital to meet the responsible entity requirements. I can plan the first fund so that the second is easier.

Call me on 0418 998 677 to work out which structure fits your plans.

This page contains general information only. It does not take into account your objectives, financial situation or needs, and it is not financial product or legal advice.

Frequently Asked Questions

The choice affects who can invest, the licence authorisations, the operator, the offer document and the regulatory requirements. A retail fund must be registered and operated by a responsible entity, while a wholesale fund is generally unregistered and limited to wholesale investors.

A wholesale fund commonly uses an information memorandum. A retail fund uses a product disclosure statement with prescribed content and also requires a target market determination.

Some fund managers begin with a wholesale structure and later seek the licence authorisations and registrations needed for a retail offer. Planning the first structure with that possibility in mind can reduce the need to start again.