What is a sophisticated investor?

The term sophisticated investor is a term that is used in the investment or securities community. It is a term used to explain an investor that has a certain level of net worth and income. It is assumed that if that investor has that level of net worth and income that they know more than the average population about investing. Certain types of investments are only available to sophisticated investors. Selling these types of investments to unsophisticated, or people that don’t meet the criteria of a sophisticated investor, is illegal, improper and can be reversed. As such, it is important in certain FINRA arbitration cases to determine whether or not the investor involved who is going to be filing a complaint is classified as a sophisticated investor. This is also the case because many FINRA arbitration actions involve investments which are only supposed to be sold to sophisticated investors as opposed to the general population.