What is a sophisticated investor certificate?

Normally investors must be given a disclosure document such as a prospectus before being offered shares or securities for purchase. However investors holding a sophisticated investor certificate are exempt from these rules and can purchase these shares without having received a prospectus.

So how do you get a sophisticated investor certificate?

Under chapters 6D and 7 of the Corporations Act 2001, a qualified accountant may issue a sophisticated investors certificate to an investor.

A qualified accountant is defined in section 88B of the Act as a person belonging to:

  • Chartered Accountants Australia and New Zealand;
  • CPA Australia:
  • Institute of Public Accountants (IPA); or
  • Certain other eligible foreign professional bodies

Before issuing a certificate an accountant must consider whether the investor satisfies the criteria to qualify as a sophisticated investor. This criteria is set out in the Corporations Regulations as:

  • Net asset of at least $2.5 million; or
  • A gross income for each of the last 2 financial years of at least $250,000.

The accountant uses their professional judgement to in measuring income and assets for the purposes of these tests, and can take into account the income and assets of controlled companies and unit trusts (usually 50% ownership), but not discretionary trusts.

Certificates are valid for up to two years.

Pro tip:
There is potentially a greater level of risk when considering investments as a sophisticated investor as you may not received important information including  a statement of advice, product disclosure statements or prospectus.

Author: Jesper Lim
Email: jesper@faj.com.au