Can it be true that in a modern liberal Western democracy we have one set of laws for the "sophisticated" amongst us and one for those of us who aren’t?

In fact, the Financial Services Authority makes allowances for “sophisticated investors” who are  deemed to have sufficient investing experience and knowledge to weigh the risks and merits of an investment opportunity. This of course implies ordinary or unsophisticated investors cannot understand such risks.

Consequently, investment opportunities for these sophisticated investors and High Net Worth Individuals are regulated less tightly than the rest of us. These include stocks and shares in unlisted companies or collective investment schemes, where the underlying investment is in unlisted company. 

What is the impact of this in practice?

There is little evidence of any significant difference in performance between of listed and unlisted stocks, although listed shares are arguably more volatile. However, over the last decade or so since the dot com crash, unlisted investments in the form of venture capital seem to have delivered near to zero returns. And while interest rates on domestic savings are also currently at historic lows, domestic savings deposits (what we do with much of any savings we are lucky enough to have squirelled away) will have at least delivered a net positive return over the last decade. This suggests that being “sophisticated” is no guarantee of making good decisions!

So in conclusion, we have a law which flatters the rich and arrogant, protects them less than ordinary folk and - over the last 10 years at least – has made it easier for them to make investments which have been financially less rewarding than the investments made by rest of us. What a marvellously sophisticated piece of lawmaking.