‘Sophisticated’ investors struggle with financial knowledge

Of the 422,000 households in Australia that qualify as wholesale or sophisticated investors, only 12% can answer simple compound interest questions, according to CoreData.

The question of how to distinguish wholesale versus retail investors was being evaluated in the Australian Law Reform Commission’s financial services legislation inquiry, with consumer groups calling for the removal of the financial threshold test.

Speaking at the Stockbrokers and Investment Advisers Association (SIAA) conference in Sydney, Andrew Inwood, founder and principal of CoreData, said it was interesting to see those that could answer the compound interest questions were significantly wealthier than those who could not.

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President of the Australian Law Reform Commission (ALRC), Justice Sarah Derrington, highlighted the need to address wholesale client question to move with the times.

“The Australian demographic has changed significantly over the past 20 years and we've seen a real financialisation of the economy and more and more people investing either on their own or through various businesses,” Justice Derrington said.

She said there was a growing client base of wealthy people, who were significantly wealthier than 20 years ago, but that it was a mistake to classify all of them as being sophisticated financial investors.

“The result of that is that they lose the benefit of all the consumer protections.

“So just because you might be wealthy on a numerical basis, doesn't seem to us to be a legitimate reason for removing all the protections that those people would otherwise have.

“So they’re the types of policy issues that we're identifying on the way through and suggesting that government might, at some point in the future, want to interrogate those.”




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Financial planners have been stating this for years - we have to wait for a judge to confirm what we've been saying to be listened to.

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