‘Sophisticated’ investors struggle with financial knowledge

education/financial-literacy/ALRC/

30 May 2022
| By Liam Cormican |
image
image
expand image

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.

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.”

Read more about:

AUTHOR

Recommended for you

sub-bgsidebar subscription

Never miss the latest news and developments in wealth management industry

MARKET INSIGHTS

So we are now underwriting criminal scams?...

2 months 3 weeks ago

Glad to see the back of you Steve. You made financial more expensive, not more affordable as you claim, and presided ...

2 months 3 weeks ago

Completely agree Peter. The definition of 'significant change is circumstances relevant to the scope of the advice' is s...

4 months 4 weeks ago

ASIC has suspended the Australian Financial Services Licence of a Melbourne-based financial advice firm....

1 week 5 days ago

The corporate regulator has issued infringement notices to three AFSLs whose financial advisers provided personal advice to a retail client while unregistered....

2 weeks 3 days ago

ASIC has released the results of its first adviser exam to be held in 2025, with 241 candidates attempting the test....

3 weeks 1 day ago

TOP PERFORMING FUNDS

ACS FIXED INT - AUSTRALIA/GLOBAL BOND