Some advisers have expressed their support for a review of the high net worth investor exemption, following a call for input by the regulator.
The Financial Conduct Authority (FCA) is asking for views until December on how the current high net worth investor exemption works, and the level at which it is set.
Piers Mepsted, managing director at Financial Advice Centre commented that being a high earner was not justification or evidence of someone’s knowledge or experience in financial matters.
Mr Mepsted said: “Investments are by nature sophisticated. As an adviser permitted to make recommendations on these plans I have had to pass stringent industry exams and commit many hours each year to recorded and structured CPD programmes to keep this knowledge up to date.
“Objectively, unless a client has these similar qualifications and is also committed to a maintenance regime to keep this knowledge up to date it is hard to see how they can use a tick box exercise to self-certify their credentials simply by being high net worth.”
Exemptions from the financial promotion restriction allow authorised and unauthorised companies to advertise investments directly to high net worth investors without necessarily having to follow regulatory rules.
High net worth is defined as investors who have an annual income of at least £100,000, or more than £250,000 net assets.
The regulator noted the levels that determine the definition of ‘high net worth’ have remained unchanged for the last two decades, despite the value of money declining significantly in that period.
Ayodele Johnson, principal at Johnson Adviser, commented that the regulator should continue to set exemptions, but that this should be reviewed more regularly.
According to Mr Johnson, two decades was “far too long”.
He also said: “As well as a minimum asset floor, the FCA should consider a ‘percentage of net assets’ approach, with the possibility of linking the amount to an index and reviewing on a frequent basis.”
In its call for input the FCA described the exemptions as a “well-established” feature of the regulatory framework.
According to the regulator, high net worth investors are deemed more able to pay for financial advice, or to absorb a loss if an investment fails, or both.
Philip Hanley, director and independent financial adviser at Philip James Financial Services commented that high net worth clients are likely to be more willing and able to take action if things go wrong, whatever may have been said or recorded at the time.
Mr Hanley also said: “In my experience, high net worth clients are often more cautious than those with, theoretically, more to lose.”
chloe.cheung@ft.com
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