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Sophisticated Investors

According to the Australian federal government, only 4.3% of households are savvy enough to evaluate advanced investments. How have they decided this? Was it an IQ test, education requirement or a minimum level of CFA? No, it’s a simple minimum asset and income test.

The term ‘sophisticated investor’ is not meant to be derogatory to everyone else, it’s a legal term under the Corporations Act. Also known as a ‘wholesale investor’, the classification grants access to riskier, but potentially more lucrative opportunities barred to ‘retail investors’. Another supposed benefit is that the protections related to these investors are reduced, including the rules and regulations around the type of advice they can receive.

Making the cut

How does one break free of retail status? Despite the difference in investor classification being based in investor protection, knowledge has nothing to do with achieving sophisticated status. All you need is a certificate from a certified accountant. As moneysmart.gov.au states:

To be eligible for a certificate, you must have:

  • a gross income of $250,000 or more per year in each of the previous two years, or

  • net assets of at least $2.5 million (reg 6D.2.03 and reg 7.1.28)

Unsurprisingly, this has led to significant controversy and pushback, especially in the post-COVID-19 era.


While some argue there should be no difference between retail and wholesale investors, the vast majority of the critics of the income and asset test just want a new test, not a removal of the concept.

Two key examples of industry distaste for the income-based test are Super Consumers Australia policy manager Franco Morelli and President of the Australian Law Reform Commission (ALRC) Justice Sarah Derrington.

In early May 2022, Franco said:

‘In the context of high capital city house prices and a maturing superannuation system, a lot of Australians may end up being classified as wholesale investors without necessarily having the knowledge required.

This test needs to be better aligned with people’s actual financial knowledge and sophistication rather than how much money they have.’

Justice Sarah has echoed similar sentiments, also in early 2022:

‘The result of that is that they lose the benefit of all the consumer protections. So just because you might be wealthy on a numerical basis, doesn’t seem to us to be a legitimate reason for removing all the protections that those people would otherwise have.’

However, not everybody agrees. The Financial Services Council has backed a lift in the threshold to $5m, rather than a whole new standard.

Sophisticated products

While sophisticated investors have reduced protections, they also gain access to additional investment options barred to retail investors. These products are classified with the label ‘wholesale-only’. Let’s look into a few of them.

One of the most controversial wholesale-only products is early-stage investments in startups or other venture capital investments. While there are a few exceptions, for the most part accessing these investments in Australia requires sophisticated investor status.

Another example is pre-IPO offerings and other single asset closed products. These closed products can include debt instruments, private equity, etc.

Still, with the backing of some powerful reformers and no legislated indexing of the requirement, it seems likely that a change in sophisticated investor status is in Australia’s future. The only question is which direction it will take, and if it’s in a matter of months or years.

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Stakeshop Pty Ltd, trading as Stake, ACN 610105505, is an authorised representative (Authorised Representative No. 1241398) of Sanlam Private Wealth Pty Ltd (Australian Financial Services Licence No. 337927) ('Sanlam') and an authorised representative (Authorised Representative No. 1241398) of Airwallex Pty Ltd (Australian Financial Services Licence No. 487221) ('Airwallex'). Stake is not authorised by Airwallex under Airwallex’s AFSL to arrange for clients to be issued with securities as Airwallex is not authorised under its AFSL for this purpose. Stake is not authorised by Sanlam under Sanlam’s AFSL to arrange for clients to be issued with a non-cash payment facility as Sanlam is not authorised under its AFSL for this purpose. Stake SMSF Pty Ltd (‘Stake Super’) is not licensed to provide financial product advice under the Corporations Act. This specifically applies to any financial products which are established if you instruct Stake Super to set up a self managed super fund (‘SMSF’). When you sign up to Stake Super, you are contracting with Stake SMSF Pty Ltd who will assist in the establishment of a SMSF under a ‘no advice model’. You will also be referred to Stakeshop Pty Ltd to enable your trading account and bank account to be set up in order to use the Stake Website and/or App. Stakeshop Pty Ltd will also run marketing and promotions to you under. For more information about SMSFs, see our SMSF Risks page.The information on our website or our mobile application is not intended to be an inducement, offer or solicitation to anyone in any jurisdiction in which Stake is not regulated or able to market its services. At Stake and Stake Super, we’re focused on giving you a better investing experience but we don’t take into account your personal objectives, circumstances or financial needs. Any advice given by Stake is of a general nature only. As investments carry risk, before making any investment decision, please consider if it’s right for you and seek appropriate taxation and legal advice. Please view our Financial Services GuideTerms & ConditionsPrivacy Policy and Disclaimers  before deciding to invest on or use Stake or Stake Super. By using our website or service in any way, you agree to our Privacy Policy and Terms & Conditions. All financial products involve risk and you should ensure you understand the risks involved as certain financial products may not be suitable to everyone. Past performance of any product described on this website is not a reliable indication of future performance. Stake and Stake Super are registered trademarks in Australia.

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