Are you a sophisticated investor?

Do you have net assets of $2.5 million or annual income of $250,000?.

The term sophisticated investor is used in the Corporations Act to describe a class of investor that can be offered securities without the usual product disclosure requirements that apply to everyday mum and dad investors.

To become a sophisticated investor, you have to acquire a certificate from a qualified accountant, stating that you have net assets of $2.5 million and/or that your gross income for the past two financial years has been at least $250,000 a year. That certificate must have been obtained within six months of accepting any wholesale offer to acquire securities.

Why would I want to be known as a sophisticated investor?

All you need to do is ask your regular accountant to certify that you meet those thresholds and you are on your way to accessing wholesale and institutional offers, usually the preserve of the "big end of town".

It sounds straightforward and has some definite advantages.

Once you are known as a sophisticated investor, your broker and other advisers will make available to you offers that are not "public" and these are often referred to as wholesale offers.

You will still be able to participate on any public offers that are made available but the old saying that "money makes money" seems apt when these non public offers become available and often they are made available to sophisticated or "Section 708" investors prior to the general public.

These wholesale offers are also often made at lightning speed. A broker may inform their sophisticated clients that a placement will be available at close of market, that same day, and they will have two hours to decide whether or not to take up the offer.

When this happens you need to scrutinise the deal and offer on the table, as these opportunities are made without retail levels of disclosure.

By being a sophisticated investor, the level of opportunity goes up and your level of caution should go up accordingly, as wholesale investment opportunities shouldn't be considered less risky than those available to retail investors.

A sophisticated investor doesn't get the same level of disclosure so it means they need to apply an appropriate degree of discretion, scrutiny and discrimination to the investment.

The investor needs to fully understand where securities on offer are coming from. They may even be from private companies, who are not permitted to sell securities to retail investors. In that instance, you may be entering a high-risk arrangement.

It's also necessary to understand the nature of the relationship between your broker and the party offering the securities without disclosure. Of course, you will be paying normal brokerage for securities purchased but if your broker is also making money on the deal from the securities provider, they may have a vested interest in encouraging you to take up the deal.

Be sure to talk to your adviser or broker the next time you meet to make sure that your sophisticated investor certificate is up to date to ensure that you are at least being made available the types of offers that are being made in the "big end of town".

If you are already a sophisticated investor, make an appointment with Ezecapital and its advisers today to access some of the opportunities that are available for the "big end of town" as an Ezecapital client.