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WHAT IS A "QUALIFIED INVESTOR?"
You would have come across the terms accredited, retail, wholesale, institutional, qualified, professional and sophisticated investors. Generally, such investors can access a broader range of investment opportunities unavailable to the general public and retail investors.
What you may not really know, is the differences between each investor type. Your level of experience and assets usually determines the type of investor you are, so let’s quickly define the four main types of investors listed above.
Different countries have different criteria.
Sophisticated Investor Status
Sophisticated investors can access a broader range of investment opportunities unavailable to the general public and retail investors.
Becoming a sophisticated investor is a relatively simple process if you qualify.
The definition of “sophisticated investor” is outlined in section 708 of the Corporations Act 2001 (Cth).
Australian corporations law defines a sophisticated investor as an investor that can be offered securities without the need to provide them with the same product disclosure requirements that must be provided to retail investors.
There are several ways you will be able to obtain access to investments.
For most individuals, you must meet at least one of the following criteria:
- Price/value test
You intend to invest AUD$500,000 or more in a single offer.
2. Net assets/income test
A person or entity has obtained an accountant’s certificate from a qualified accountant stating that the client:
- has net assets of at least $2.5 million, or
- has a gross income for each of the last two financial years of at least $250,000.
Once a certificate is obtained, it is valid for two years
3. You are a professional investor
A person who has or controls gross assets of at least AUD$10 million (including any assets held by an associate or under a trust that the person manages)
An accredited investor satisfies one or more of the conditions below:
- An individual whose net personal assets exceed S$2 million;
- An individual whose income in the preceding 12 months exceeds S$300,000; or
- Corporations with assets exceeding S$10 million.
Individuals, either alone or with any associates on a joint account, having a portfolio of not less than HK$8 million or its equivalent in foreign currency;
- Corporations or partnerships having either a portfolio of not less than HK$8 million or total assets of not less than HK$40 million; or
- Trust corporations, with total assets of not less than HK$40 million or its equivalent in foreign currency;
- A corporate investment vehicle that is wholly owned by any of the three categories above.
Under amendments to the Hong Kong Code of Conduct’s Professional Investor regime, individual and certain corporate Professional Investors are subject to heightened requirements. Seek legal or accountants advice.
According to the Securities Commission Malaysia (SC), a "qualified" investor refers to at least one of the following:
Investing as an Individual
(a) an individual whose total net personal assets, or total net joint assets with his or her spouse, exceed three million ringgit or its equivalent in foreign currencies, excluding the value of the individual’s primary residence;
(b) an individual who has a gross annual income exceeding three hundred thousand ringgit or its equivalent in foreign currencies per annum in the preceding twelve months;
(c) an individual who, jointly with his or her spouse, has a gross annual income exceeding four hundred thousand ringgit or its equivalent in foreign currencies in the preceding twelve months;
Investing as a Corporation, seek accountants or legal advice.
What is the Advantage of Sophisticated Investor (Australia) Classification?
The assumption that drives the sophisticated investor qualification process is that an investor possesses sufficient experience in investing and a greater understanding of opportunities than a retail investor.
The Corporations Act provides many protections for investors, but many of these protections are provided only to retail investors. An individual certified as a sophisticated investor or wholesale client is unable to benefit from these protections, which include:
- Provision of a Financial Services Guide
- Statement of Advice
- associated obligations
- Sophisticated Investors & Risk Management
Wholesale offers are quite often taken up extremely quickly.
Sophisticated investors are obligated to scrutinize all investments carefully, but are required to significantly increase the amount of scrutiny they apply to investments that are made without the disclosure provided with retail investment opportunities.
The level of caution applied to an investment opportunity typically increases in tandem with the level of opportunity and investment offers — wholesale investment opportunities are usually associated with higher levels of risk when compared to retail investment opportunities.
Investors are responsible for understanding where the securities on offer originate from. Securities offered by a private company, for example, can not be offered to retail investors and may therefore represent a high-risk arrangement.
What are the major differences between retail and wholesale investors?
- Retail investors must be provided with a Financial Services Guide (FSG), Statement of Advice (SOA) and where appropriate, a regulated offer document such as a Product Disclosure Statement (PDS)
- Retail investors have access to external dispute resolution schemes, while wholesale investors generally do not
- Retail investors are afforded all the consumer protections contained in the Future of Financial Advice (FOFA) reforms
- Wholesale investors can access a wider and more complex range of investments and products, which may have an enhanced risk profile
What is the rationale for the distinction?
Wholesale investors are considered better informed and more financially astute than retail investors and have relevant experience in investing. Accordingly, it is argued wholesale investors do not require all the consumer protections that apply to retail investors.
What is a retail investor?
The basic proposition in the Act is that all investors (or potential investors) are retail, unless an exemption applies.
DISCLAIMER: Seek your own advice from professionals as to your status if in doubt. IIn preparing this information, Aurient Limited ("The Company") has relied upon information provided by the various partners and information that is publicly available. This report is for the sole purpose of assisting potential investors ("Prospective Investors") in relation to understanding who is a qualified investoir in Australia. The material has been prepared for informational purposes only should in no event be construed as a solicitation or offer; as investment, legal, tax or other advice; or as a recommendation to buy, sell or engage in any transaction whatsoever. Offers to sell, or the solicitations of offers to buy, any security can only be made through official offering documents that contain important information about risks, fees and expenses. This website and information does not take account of a recipient’s objectives, financial circumstances or needs. Requriements for qualifying accredited investors may change and professional advice should be sought. All investments involve risk that can lead to a loss of part of or all of your capital. The Company does not provide financial advice and is not a financial adviser. The Company does not give or purport to give any taxation or financial advice.
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