Protection for professional investors
An individual investor who has a portfolio of not less than $8 million will be defined as a professional investor. However, investment knowledge and experience does not necessarily correlate to wealth. As such, professional investors may be concerned that they will not be afforded the protection given to general retail investors simply because they are regarded as more sophisticated and capable enough to protect their own interests.
When intermediaries sell investment products to professional investors, they are exempt from some but not all conduct requirements. The existing regulatory regime has measures in place to protect the interests of professional investors.
- Not everyone wants to be labeled as a professional investor. An individual investor or a corporate can disagree with being treated as a professional investor by an intermediary. An individual or a corporate professional investor have the right to revoke such consent at any time too. Intermediaries should explain to their individual and corporate clients the impact of being treated as a professional investor and obtain their consent. They should also confirm the professional investor status with the clients at least annually.
- It is without question that individual and corporate professional investors may not necessarily have the investment knowledge and experience comparable to institutional professional investors. Therefore, when intermediaries are dealing with professional investors, they must observe the suitability requirement as same as dealing with general investors to ensure that their solicitations and recommendations made to customers are reasonable
Under the current Ordinance, since the holding company of a corporate professional investor will automatically become a professional investor, the directors of the relevant holding company should inform the shareholders of the consequences of the company becoming a professional investor. Prior to rendering services, the intermediary should also confirm to ensure that the shareholders of the holding company have been informed of the company’s professional investor status.
Professional investors have access to more investment opportunities than ordinary investors, but not all products marketed by the intermediaries are suitable to their own circumstances. In deciding whether to participate in an investment product or scheme, investors should be clear about their investment objectives and the associated risks, and know that they have the right to say no.
Bear in mind that the definition by law has nothing to do with whether you agree to be treated as a professional investor by the intermediary, or whether to accept any investment recommendations by the intermediary. The decision is up to you!
31 October 2018