High-net-worth and sophisticated investor profiles.

May 17, 2022
High-net-worth and sophisticated investor profiles.

We take a look at a certified high-net-worth and sophisticated investor classification and explain what it is and how it works for UK investors.

What are a high-net-worth and sophisticated investors?

In layman’s terms, a high-net-worth and a sophisticated investor refer to two sets of people. A high-net-worth investor is a person who is deemed to have an income or assets above a certain level. Whilst a sophisticated investor is someone who is deemed to have a good understanding of investments.

Because these types of investors have either deeper pockets or a better understanding of financial products than the average person, the regulators have allowed them to gain access to some investments which would unlikely be offered to the general public.

High-net-worth investor classification

To qualify as a high-net-worth investor you need to meet one of these two requirements:

  • have an annual income of more than £100,000;
  • or savings of more than £250,000 (this excludes the property you reside in).

Sophisticated investor classification

To qualify as a self-certified sophisticated investor you need to meet one of these four requirements.

  • Be a member of a network or syndicate of business angels and have been so for at least the last six months;
  • Have made more than one investment in an unlisted company in the two years;
  • Are working, or have worked in the last two years, in a professional capacity in the private equity sector, or in the provision of finance for small and medium enterprises;
  • You are currently, or have been in the last two years, a director of a company with an annual turnover of at least £1 million.

What do these classifications mean for investment purposes?

In simple terms, it means these types of investors can choose to exempt themselves from regulatory protection by the UK regulator.

In the UK certain types of investment are highly regulated. This is in response to several high profile financial frauds in the UK’s history. By introducing higher degrees of regulation, it is hoped that financial frauds are less likely to occur in the future. This is important for two main reasons:

  • Protection of investors. This is important as bad investments can ruin investors’ and their families’ lives.
  • Confidence in the system. This is another very important consideration. If people do not have confidence in banks or wealth managers, the UK financial services industry would come to a halt. In the UK over one million people work in the financial industry. This industry also underpins the rest of the economy by providing finance and liquidity to companies. This is why regulation is essential.


When you deal with a regulated firm you are given a degree of protection. If a bank becomes insolvent, your savings are protected up to a certain level. Likewise, if you invest in financial products and you receive bad advice, you may qualify for some compensation. To qualify for compensation you will need to prove that you were mis-sold and the risks were not properly explained to you.

If you sign yourself off as either a high-net-worth or sophisticated investor, you are not entitled to receive any protection from the FCA. This means if you lose all of your capital you have no financial recourse.

In recent years several investors have lost a lot of money by investing in investments where they have forgone their regulatory rights. When scrutinised more closely many of these exempt schemes have deliberately misled investors about risk, and in some instances have conducted outright fraud. Because of this, the regulator is now looking into investments which have been structured specifically for this investor group. You can find out more about exemptions rules for high-net-worth and sophisticated investors by clicking here.

A badge of the Financial Conduct Authority
the UK financial regulator

Who is the UK financial regulator?

The current regulator in the UK is the Financial Conduct Authority. They work with the Prudential Regulation Authority to collectively oversee regulation in the UK. The FCA took over from the now disbanded Financial Services Authority.

What does the FCA regulate?

The FCA oversees a lot of activities. Anything which is regulated is deemed a controlled activity. Anyone working in such a function is expected to have:

  • A minimum level of qualification. Financial advisors, for example, need to pass more stringent examinations.
  • Act with honesty and integrity. All prospective employees should be vetted by their company prior to representing the regulated firm.
  • Culpability. As an employee of a regulated firm, you are responsible for the advice that you administer.

The FCA regulates mortgages, investments, pensions and insurance products, plus a range of other financial services. From an investment perspective, the key point is that anything which is a pooled investment should be regulated. A pooled investment are shares in a company or any collective scheme, such as bonds or funds.

What doesn’t the FCA regulate?

For investment purposes, anything which is not a collective investment is likely not to be covered by the FCA. For example, buying gold as a physical commodity would be governed by the department of trade and industry as it is a physical asset. Whilst investing in a gold mining company’s shares is regulated by the FCA.

Similarly, direct property investment is not covered by the FCA as it is a tangible asset and not a collective investment. Whilst shares in a property company or fund would be regulated by the FCA.

The logos of the Property Redress Scheme and The Property Ombudsman
The two property redress schemes

How is property regulated in the UK?

Until recently there has been very little regulation in the UK property market. More recently there have been some initiatives to change this. Under the Consumers, Estate Agents and Regress Act 2007 an estate agent must be part of a redress scheme.

There are two separate redress schemes in the UK. They are:

Both schemes perform the same function. When having a dispute with an estate agent or property investment company, you should address the company first. If they do not resolve the issue you can go to the redress scheme which oversees the company. At Esper Wealth, we are members of the Property Redress Scheme. You can find our membership details at the bottom of our website.

The Enterprise Investment Scheme and Seed EIS offer investor exceptional tax breaks.

The best investments for high-net-worth and sophisticated investors

There are a lot of investments that are structured specifically for high-net-worth and sophisticated investors. The best ones are investments that offer good tax breaks. The Enterprise Investment Scheme (EIS) and the Seed Enterprise Investment scheme (SEIS) offer exceptional tax breaks to qualifying investors.

These schemes offer income tax breaks, loss relief, and investment returns exempt from CGT tax. This is designed to incentivise investors to invest in early-stage growth economies. As a result, investors can get an exceptional deal where the government takes most of the risk on an investment. For example, a 40% taxpayer can claim back 70% of an investment if it loses money, whilst any gains are completely tax free. Investors can find out more about more about both schemes by clicking on the enclosed link.