Are you a Sophisticated Investor?

Sophisticated Investor

What does it mean to be sophisticated? Wearing a nice suit, drinking expensive wine, eating in the finest restaurants? We will all have a different view of what we perceive to be ‘sophisticated’. When it comes to investments, however, the term ‘sophisticated’ should only apply to a very limited number of people irrespective of what bottle of French red wine they enjoy!

A number of questions arise……..

1. What is asophisticated’ investor?

By definition the Financial Conduct Authority (FCA) defines sophisticated investors as “investors with many years’ experience and exposure to of a wide range of investments, including complex financial instruments”.

Sounds complicated – and it is!

2. For what reasons would anyone need to be classed as a ‘sophisticated’ investor?

Certain investments are so complex, high risk and speculative that they are only suitable for those with considerable financial resources and experience. For that reason the financial industry decided that certain products should not be sold to members of the general public. These complex investments are known as Unregulated Collective Investment Schemes (UCISs) and take the form of hedge funds or unusual investments in industries such as forestry, film production or foreign property. However, more common examples include investments in European shopping centres or overseas development schemes.

3. What do you need to do to become a sophisticated investor?

Before a complex product has been offered to a potential investor a full appraisal should be carried out by an Independent Financial Advisor (IFA). The IFA will make a call on whether or not the client is ‘sophisticated’ and, if so, will certify the customer as being so.

It has been our experience that many individuals have been incorrectly classified as ‘sophisticated’. For example, although an individual may own many ‘buy-to-let’ properties and view themselves as an investor, this does not in itself make them ‘sophisticated’. The threshold is much higher. It has also become apparent that regulatory guidelines have been disregarded by certain IFAs and that customers have been sold schemes that should never have been recommended to them.

If you have been classed as a ‘sophisticated’ investor and have reason to believe that a UCIS has been mis-sold to you, and you have suffered a financial loss because of it, you may be entitled to claim against your bank and/or financial adviser and you should contact us immediately for legal advice by phoning 028 90 329801 or emailing us at legal@mtb-law.co.uk.