Didn’t You Say You’re A ‘Sophisticated Investor?’


This story in the FT Adviser reminds me of something we’re very  good at in financial services; appealing to people sense of ego and self-importance by giving them all sorts of labels which enable us to then sell then load of stuff that they probably don’t understand and, in most cases don’t need.

Labels such as  ‘High Net Worth Investor’, ‘Ultra High Networth Investor’, or  ‘Wealth Management Client’ are essentially the invention of the FS marketing machine. There aren’t really clear definitions of what these actually mean or how a client becomes ‘eligible’ to enter these prestigious clubs…., we can make clients fits in them whenever we like.

It seems to me that we tend to think that if people have a lot of money, they most be smarter and need something more complicated. 

The FCA handbook actually has specific definitions for certified HNW and sophisticated investor but you’ll be surprised it see how little it actually means;

‘A certified high net worth individual is an individual who has signed a statement in the form prescribed in Part I (Statement for certified high net worth individuals) of Schedule 5 to the Financial Promotion Order. This requires the individual to certify that he has earned at least £100,000 or have held net assets to the value of more than £250,000 throughout the financial year before the date of the certificate.’ (PERG 8.14.22)


To be a sophisticated investor for the purposes of article 50, the recipient of a financial promotion must have a current certificate from an authorised person stating that he has enough knowledge to be able to understand the risks associated with the description of investment to which the financial promotion relates.

See also PERG 8.14.28B for self-certified sophisticated investor! 

In essence, people are classed as ‘sophisticated investor’ if they have a decent size portfolio (£250K) and they or someone else (an authorised person) says they are. But how many times have you met clients who, maybe meet some of these criteria but can’t tell the difference between an ISA and their left arm?
And if client already has a load of complicated products, it must be because they understand them and on that basis, we can presume they are sophisticated?  Isn’t that same as saying because an adviser/private bank down the road has already flogged the client a lot of crappy stuff, that gives us the permission to sell them more crap?

 Anyway, as reported in this particular case in the FT Advisee, the FOS disagreed! Because there wasn’t enough evidence of file to prove that the client is sophisticated, the FOS ruled that they aren’t, especially given that she sought advice. Their words…

“If she had been (sophisticated), she would presumably have been able to make her own arrangements and would not have needed to employ the services of an adviser.”

In any case, even if an investor is sophisticated, who decided that means we could/should sell them things they have no hope of understanding and could potentially be deemed unsuitable? Ultimately, it comes down to this – if someone is seeking advice, the onus is on the adviser to make sure the advice is suitable and will stand up to scrutiny! Even if the client walks in and says ‘I want this and this and that’ it is up to the adviser to decide whether they really are an ‘adviser’ or just an order taker.




Credit: Album cover of  Sophisticated Ignorance by Da YoungFellaz

Abraham Okusanya
Abraham is the founder of FinalytiQ, a research consultancy for platforms, asset managers, and advisory firms. Recognised as one of the country’s leading experts in retirement income, platforms and investment propositions, Abraham has authored several papers on these subjects and delivered talks to the Personal Finance Society, The FCA and several conferences across the country.

Read Full Bio

Submit a Comment

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.