So you have invested in a home in one of our east coast capitals over the last two or three years and you don’t realise that your huge property investment success can put you at risk! The warning comes from some financial experts in today’s media.
(Please contact us at info@limepropertysolutions.com.au for further information or the chance to discuss this and other issues in the comfort of your own home.)
Most of us are protected from very risky investment by The Australian Securities and Investments Commission (ASIC). ASIC offers client consumer protection to retail investors where financial advisors deliberately miscategorise their clients or when companies fail to properly disclose their businesses. However these protections are not available to sophisticated investors and this is where the problem now lies! Unknown to many successful mum and dad property owners, and in particular successful property investors, the growing assets you have acquired over the last couple of years re-defines you as a ‘sophisticated investor’.
What is a ‘Sophisticated Investor?’
A sophisticated investor is a type of investor who is deemed to have sufficient investing experience and knowledge to weigh the risks and merits of an investment opportunity.
For certain purposes, net worth and income restrictions must be met before a person can be classified a sophisticated investor. The distinction makes an investor eligible to buy into certain investment opportunities, such as pre-IPO securities, that are considered “non-disclosure” or “non-prospectus” issues. Typically, a sophisticated investor must have either a net worth of $2.5 million or have earned more than $250,000 in the past two years to qualify.
Sophisticated investors may have to prove their net worth prior to being eligible to purchase certain security types. Investors will often have their personal accountants send this proof to the brokerage firm. Sophisticated investors are the dream clients of most financial services firms, as they generate much higher fees than retail investors. Read more here.
Certain assumptions are made about sophisticated investors: that they can hold their investments indefinitely (the funds do not need to be liquidated for cash needs), and they can assume a total loss of investment principal without causing severe damage to their overall net worth. You may have made this $2.5 million simply on the value of your own home and one or two investment properties, do you really want to be classified as a sophisticated investor and lose your ASIC protection?
(If you want to know more about property investment and asset growth, contact us now at info@limepropertysolutions.com.au.)
