By Lucy Dean


The government is poised to make it harder to become a sophisticated investor, afraid that cash-rich but knowledge-poor investors are getting themselves into too much trouble.

This week in Wealth Generation:

• What it costs to send your kid to public, Catholic or private school.
• So you inherited $1 million. What next?
• And, the wellness hacks of the wealthy, and how to do it yourself.

But first: caveat emptor.

That’s Latin for “buyer beware”, and this week, the warning is everywhere.

Thinking of plugging some money into a bitcoin ETF, now the SEC has approved bitcoin spot price ETFs? Caveat emptor still applies, writes The AFR View.

What about investing in (riskier but potentially lucrative) wholesale-only equity placements by listed companies, or buying shares in early-stage or pre-IPO firms, property trusts or private debt, as those certified as “sophisticated investors” can do?

Caveat emptor, says BDO senior consultant Peter Crump. Just because you’re rich, doesn’t mean you’re smart.

As it stands, only investors with $2.5 million in assets or $250,000 in income can be certified as a sophisticated investor, a wealth and income threshold that hasn’t changed since 2001. It means many Australians whose home values have exploded since then have surpassed the threshold.

But the Labor government is now poised to lift that threshold to $4.5 million in assets or $450,000 in income.

Financial advisers and accountants have welcomed the change, but say that a mere financial benchmark is still a poor way to determine whether someone is sophisticated or not.

Instead, they’re advocating for a knowledge test to be part of the requirement, or perhaps would-be sophisticates need to prove a history of generating returns through clever investment decisions.

Then there’s the matter of the lower-income earners who also happen to be savvy money-makers. Low-wealth wunderkinds deserve access to these opportunities too, argues fund manager Geoff Wilson. He’s been arguing it for years.

In a 2020 submission to the Senate Select Committee on Financial Technology and Regulatory Technology, he said retail investors were unfairly excluded from participating in capital raisings. The fund manager believes retail investors have effectively missed out on billions in forgone equity.

Audentes fortuna juvat, after all. Fortune favours the bold.

Speaking to Wealth Generation, Wilson says the industry needs to be consulted before changes to the threshold are made, and believes that listed companies should be carved out of the sophisticated investor test as consumer protections are already built into the ASX’s structure.

But consumer advocates and regulatory bodies support a higher threshold and also think the family home should be excluded from the test.

BDO’s Peter Crump thinks it always comes back to knowledge, knowledge, knowledge.

“If on a theoretical basis, I was engaging with a person under a sophisticated investment regime … I would say to them, ‘I want you to explain to me how this investment works. I want you to explain to me the risks involved, and I also want you to explain to me how you would address your concerns if you wanted to quit this investment.’”

A final bit of Latin? Scientia potestas est.

Knowledge is power.

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