Risks of Sophisticated Investor Certification

Urgent review of sophisticated investor criteria needed – Source : (CPA Australia)

Many clients now qualify as sophisticated investors.

Retail investors have enforceable protections under the Act designed to reduce their risk of making poor investment decisions.

These include specific legal requirements incumbent on investment product issuers and promoters –  including financial advisers – around disclosure, dispute resolution, product design, and conduct.

The rules are different for sophisticated investors. Once certified by an accountant, sophisticated investors effectively relinquish any such legal protections.

They’re regarded under the Australian Securities and Investments Commission’s sophisticated investor test as having sufficient experience in using financial services and investing in financial products to allow them to assess the advantages and disadvantages of different products or services.

They’re also considered to understand the value of investment products or services and the risks associated with investing in specific products, financial securities or other assets.

As a result, there’s no legal obligation on the part of product offerors or financial advisers to provide designated sophisticated investors with either a prospectus, product disclosure statement, target market determination document, or a statement of advice.

In 2021, Treasury recommended that the Australian Financial Complaints Authority exercise its discretion on whether to accept complaints from sophisticated investors unless there was evidence they were incorrectly certified.

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