Are You a Sophisticated Investor?


In March 2005, the rules relating to contacting people regarding financial promotions were relaxed, so that sophisticated investors and high net worth individuals (HNWIs) could be more easily approached to make investments in unlisted securities. The purpose of the relaxation was to remove impediments to business angels and others seeking finance for businesses of small to medium size and to aid the seeking of informal venture capital generally.
It is possible to ‘self-certify’ yourself as a HNWI or a sophisticated investor. To self-certify as a HNWI you have to earn at least £100,000 per year or have net assets (excluding your property, pensions and insurances) of at least £250,000.
To self-certify as a sophisticated investor you must:

1        have been a member of a business angels network for at least six months; or

2        have made at least one investment in an unlisted security in the previous two years; or

3        have worked in a professional capacity in the provision of finance to small or medium sized businesses in the last two years or in the provision of private equity; or

4        be or have been within the last two years a director of a company with a turnover of at least £1 million.
A promoter needs to have a ‘reasonable belief’ that the self-certification has occurred. The self-certification has to be in writing, but a promoter can rely on a verbal assurance that a person has self-certified as a sophisticated investor or HNWI. When accepted as a HNWI or sophisticated investor, the protections available for an investor relating to the promotion of securities by a person authorised under the Financial Services Act are removed. Appropriate ‘risk warnings’ must still be included in all promotional material given to potential investors.

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