ASIC urged to tailor 'sophisticated' borrower treatment

by 28 Aug 2012

High-net-worth or 'sophisticated' investors should be acknowledged in a special category under NCCP to cut down on regulated disclosures, according to National Mortgage Brokers' Gerald Foley.

In a similar way to ASIC's treatment of clients in the managed investment market, Foley said 'sophisticated' clients should be acknowledged by the regulator as being more able to evaluate credit offers, negating the need to provide repeated disclosure documentation.

In the case of investments, advisers can deem clients 'sophisticated' when they have had a gross income of $250,000 or more in each of the past 2 years, or have net assets over $2.5m.

Proved via a certificate from an accountant, these investors are then understood to be able to evaluate offers of securities and some financial products without needing the protection of a regulated disclosure document.

"Through our broker audit process, we see many files where the borrower is arranging their 3rd, 4th or greater home or investment property loan, have significant incomes and/or a strong asset position," Foley said.

"For these customers I see no reason why similar guidelines to “sophisticated investor” rules could not be applied."

Foley said any proposed guidelines should exclude the family home under the definition of net assets.

"I hope the next round of reviews into the impact and effectiveness of the NCCP will see a preparedness to review the application of this legislation and whether there is an opportunity to recognise that the protection afforded under the NCCP is not required by all consumers," he said.

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  • by Paul Hautaniemi 31/08/2012 1:17:21 PM

    Totally agree. It's a nightmare trying to complete the Preliminary report etc when you have a client with half a dozen entities and numerous properties cross securitised. They just don't fit under the legislation which has obviously been developed for normal PAYG borrowers.

  • by ozboy 31/08/2012 1:54:22 PM

    Great idea but how have you "urged" ASIC I hope it's not through this article. Did you write to them?

  • by Rick 31/08/2012 7:07:47 PM

    What a croc ! Are you saying if a client earns $251,000 per annum working FIFO on a mine site, but otherwise has no real investments or experience with shares or property etc, THAT would make him a 'sophisticated' investor ??!!??
    A more sophisticated definition of sophisticated is required methinks.
    I would class myself as a very sophisticated investor, in several investment classes (property, shares, options, bonds) but I would not fit the above definition of high income and nett assets. Even if my example miner was in a situation where he inherited a $2.5 million family home in Cottesloe, that STILL does not make him a genuinely sophisticated (or even a novice) investor.
    A better way would be an IQ test or short exam on various investment concepts etc. ASIC could set and score these tests and then 'license' you on a 'competency' basis as a sophisticated investor. That way they turn a quid on the whole deal, which after all, is what ASIC is all about anyway ! Works for everyone then. : )