Regulations forbid the promotion of ‘esoteric’ or ‘non mainstream’ products to customers unless they can be classified as either ‘High Net Worth’ or ‘Sophisticated’ investors. The criteria for these classifications, which have been revised recently, are:
High Net Worth
- Had during the financial year immediately preceding the date of the certificate, an annual income of £100,000 or more.
- Held, throughout the same year, net assets – excluding the residential home – of £250,000 or more.
- Must meet at least one of the following criteria:
- Has been a member of a network or syndicate of business angels for at least six months preceding the date of the certificate
- Has made more than one investment in an unlisted company in the two years preceding that date
- Has worked, in the two years preceding that date, in a professional capacity in the private equity sector or in the provision of finance for small and medium enterprises
- Has been, in the two years preceding that date, a director of a company with an annual turnover of at least £1 million
A problem has now emerged as, under the new pension freedoms, some people are converting some or all of their pension funds into cash and using the money to self-certify themselves so that they can invest in high risk funds. The FCA says “The ability to access considerable amounts of cash could expose them to potentially inappropriate high risk and complex investments from which they would previously been shielded by restrictions in our rules.” Well, it is probably not a PC thing to say but it is their money, they are grown up, they are not (presumably) certified as mentally deficient – let them get on with it. Caveat emptor. That however is not how the nanny state works and people must be protected from themselves. So any adviser dealing with a high net worth or sophisticated client would do well to check just how valid the certification is before getting involved.
The above is the lead article in our monthly News Notes. Please click here for information regarding these notes.